UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported):
October 14,
2008
ENERGY
COMPOSITES CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other jurisdiction
of
incorporation)
|
|
000-52397
(Commission
File
Number)
|
|
88-0409170
(IRS
Employer
Identification
No.)
|
4400
Commerce Drive, Wisconsin Rapids, WI 54494
(Address
of principal executive offices) (Zip Code)
(715)
421-2060
Registrant’s
telephone number, including area code
Las
Palmas Mobile Estates, 6767 Tropicana Avenue, Suite 207, Las Vegas,
Nevada 89103
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01
|
Entry
into a Material Definitive
Agreement.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
2.01
|
Completion
of Acquisition or Disposition of
Assets.
|
On
October 14, 2008, Energy Composites Corporation (formerly, Las Palmas Mobile
Estates) (“
we
,”
“
us
,” or “
our
”) consummated a
share exchange (the “
Share Exchange
”) with
Advanced Fiberglass Technologies, Inc., a Wisconsin corporation (“
AFT
”), and Jamie Lee
Mancl, Jennifer Lynn Mancl and Integritas, Inc. (the “
AFT Shareholders
”)
pursuant to that certain Share Exchange Agreement, as amended, between the
parties dated as of June 26, 2008. We consummated the Share Exchange
pursuant to the approval of the holders of a majority of our issued and
outstanding stock as of August 29, 2008.
We
acquired 100% of the issued and outstanding shares of AFT’s common stock in
exchange for 28,750,000 shares of our common stock. In connection
with the Share Exchange, Diana L. Hassan, our former President and director,
cancelled and returned 21,750,000 shares of our common stock which she owned to
treasury. As a result of the Share Exchange, AFT is our wholly-owned
subsidiary and we will operate its composites and fiberglass manufacturing
business.
The
following table illustrates the effects of the Share Exchange on the capital
structure of our company:
Pre-Acquisition
:
|
|
|
Shares
outstanding
|
33,000,000
|
|
|
|
|
Acquisition
:
|
|
|
Shares
issued
|
28,750,000
|
|
Shares
cancelled
|
21,750,000
|
|
|
|
|
Post-Acquisition
:
|
|
|
Shares
outstanding
|
40,000,000
|
100%
|
Shares
owned by our stockholders
|
11,250,000
|
28%
|
Shares
owned by AFT stockholders and assigns
|
28,750,000
|
72%
|
Upon the
closing of the Share Exchange, Diana L. Hassan resigned as an officer and a
director of our company. As her final act as a director, she
increased the seats on our board of directors to five and appointed Samuel W.
Fairchild, Jamie Lee Mancl, Jennifer Lynn Mancl, Daniel P. Wergin, and Thomas J.
Klismith to serve as our directors.
Effective
October 14, 2008, we merged our wholly-owned Nevada subsidiary into our
company. We filed articles of merger with the Nevada Secretary of
State, attached herewith as Exhibit 3.1, with an October 14, 2008 effective
date. Furthermore, we amended and restated our Articles of
Incorporation, changing our name to “
Energy Composites
Corporation
”. The Amended and Restated Articles of
Incorporation also increased our authorized shares of common stock to
100,000,000 and created 10,000,000 shares of undesignated preferred
stock. The Amended and Restated Articles of Incorporation were filed
with the Nevada Secretary of State, attached herewith as Exhibit 3.2, with an
October 14, 2008 effective date. After completing the Share Exchange,
our new board of directors adopted Amended and Restated Bylaws, attached
herewith as Exhibit 3.3, effective October 14, 2008.
In
connection with our new name, the trading symbol for our common stock was
changed to “ENCC” and our new CUSIP number is 29269B 100. Our common
stock will begin trading under our new symbol and CUSIP number on October 15,
2008.
Finally,
effective October 14, 2008, we adopted the 2008 Stock Incentive Plan pursuant to
the approval of the holders of a majority of our issued and outstanding stock as
of August 29, 2008. The 2008 Stock Incentive Plan is attached
herewith as Exhibit 10.1.
Disclosure
pursuant to Item 2.01(f) follows.
Forward-Looking
Statements
This
report on Form 8-K as well as other filings with the Securities and Exchange
Commission (“
SEC
”) and our
releases issued to the public contain various statements relating to future
results, including certain projections and business trends. These
statements constitute “Forward-Looking Statements.”
Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
expectations, future events or performance and underlying assumptions and other
statements that are other than statements of historical
facts. Certain statements contained herein are forward-looking
statements and, accordingly, involve risks and uncertainties that could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. Our expectations, beliefs and projections
are expressed in good faith and are believed by us to have a reasonable basis,
including without limitations, management’s examination of historical operating
trends, data contained in our records and other data available from third
parties, but there can be no assurance that management’s expectations, beliefs
or projections will result or be achieved or accomplished. Certain
risks and uncertainties may cause actual results to be materially different from
projected results contained in forward-looking statements in this Information
Statement and in other disclosures. Finally, our future results will
depend upon various other risks and uncertainties, including, but not limited
to, those detailed in our other filings with the SEC. Actual results
may differ materially from those expressed or implied by forward-looking
statements.
History
and Overview
We were
incorporated on October 29, 1992 under the laws of the State of
Nevada. From April 1, 1993 we were inactive and were deemed to be a
“shell” company, whose only purpose was to implement a new business
plan.
On
October 14, 2008, we acquired 100% of the issued and outstanding shares of AFT,
in exchange for 28,750,000 shares of our common stock. As a result of
the Share Exchange, shareholders of AFT as a group owned approximately 72% of
our shares then outstanding, and AFT became our wholly-owned
subsidiary. We changed our name to Energy Composites Corporation as
of October 14, 2008.
For
accounting purposes, the acquisition of AFT has been accounted for as a
recapitalization of our company. Since we had only minimal assets and
no operations, the recapitalization has been accounted for as a reverse
acquisition. Therefore, the historical financial information prior to
the date of the recapitalization is the financial information of
AFT.
AFT was
incorporated in the state of Wisconsin on January 1, 2005, following nearly ten
years operating as M&W Fiberglass, LLC (“
M&W
”). AFT
is a manufacturer of corrosives storage and handling equipment in the Midwest,
and has, with its new leased manufacturing facility, large automated
manufacturing capabilities.
AFT’s
manufacturing facility is owned by M&W, which is wholly-owned by our
majority shareholders, Jamie Lee and Jennifer Lynn Mancl. Founded in
1995, M&W was the operating entity that developed and operated AFT’s
business. In January 2005, M&W transferred all operating assets
and liabilities into a newly formed S-Corporation: AFT. M&W
retained ownership of AFT’s former manufacturing facility. In
February of 2007, M&W sold AFT’s former manufacturing facility to the city
of Wisconsin Rapids. M&W then purchased and developed AFT’s
current manufacturing facility by obtaining $4,000,000 of financing as a
co-borrower with AFT, in the form of industrial revenue bonds and
notes. AFT currently leases its manufacturing facility for $35,000
per month from M&W. AFT has an irrevocable option to purchase the
leased manufacturing facility and the land for $4,500.000. This
option expires on June 18, 2009.
M&W
is considered a variable interest entity whose operations are consolidated with
AFT’s for financial accounting and reporting purposes. Among other
factors, one factor that defines a variable interest entity is that another
party has the obligation to absorb the expected losses of the
entity. M&W’s liabilities are directly attributable to AFT by
virtue of its status as co-borrower and/or guarantor of such
liabilities. While AFT has the obligation to pay M&W’s
liabilities if it cannot, the manufacturing facility is not owned by us or
AFT.
In
September 2006, our majority shareholders, Jamie Lee and Jennifer Lynn Mancl,
formed Fiberglass Piping & Fitting Company (“
FPF
”) and began
operating FPF out of the same manufacturing facility that AFT
utilizes. FPF
is a wholesale distributor of imported fiberglass piping and fitting
products. From time to time, AFT purchases products from FPF for use
in the manufacture and installation of its products. As of October 9,
2008, FPF has moved to its own location and AFT has been released as a guarantor
on FPF’s debts. AFT has entered into a supply contract with FPF,
whereby AFT will purchase products from FPF at FPF’s cost.
Description
of our Business
As a
result of the Share Exchange, AFT’s business is now our business and this
discussion will describe AFT’s history and business as our own. We
are a provider of materials to the alternative energy, flue gas desulfurization
(“
FGD
”), mining, pulp
and paper, water and waste water treatment, environmental compliance,
petrochemical and power generation industries.
We use
composite materials to engineer and manufacture complex composite structures,
vessels and processing systems including holding tanks, and ancillary equipment
manufactured from composite material, and composite ductwork and
piping. We also provide industrial retrofit services using
composites, and maintain two full-time, 24/7 field service crews with full
mobile capability to provide plant shutdown and maintenance, refurbishing, tanks
and vat relining, tank field-erection, tank and equipment inspection and repair
services, as well as installation of pipelines, crossovers, hoods, scrubbers,
absorption towers, stacks and stack liners. Our vinylester and
polyester resin, thermoplastic/fiberglass composite laminate, and carbon fiber
composite fabrication systems and processes meet or exceed the requirements set
by the Society of Plastic Industries, American Society of Testing Materials,
Reinforced Thermoset Plastics Corrosion Resistant Equipment Accreditation
Program established by the American Society of Mechanical Engineers (“
RTP-1
”), and
OSHA. We are well pursuing the RTP-1 Certification process, and upon
completion, we will be one of only nine certified RTP-1 companies in the
world. We believe this certification will provide a competitive edge
in the FGD marketplace.
We have
not made any material expenditure on research and development in the past two
fiscal years.
The
following list identifies the various markets in which we currently
compete:
·
|
Alternative
Energy:
We currently manufacture bio-fuel storage tanks
and piping systems as well as bio-fuel-related waste water treatment tank
systems for ICM Bio Phoenix and US BioEnergy/Fagen Engineering (both
headquartered in Kansas).
|
·
|
Flue
Gas Desulfurization:
We manufacture and install
equipment for FGD systems for Hitachi (Japan), Plasticon Europe
(Netherlands) and Sargent & Lundy (Chicago), with a significant
portion of our FGD manufacturing and installation performed on the client
site using mobile facilities.
|
·
|
Municipal
Infrastructure:
We manufacture and install composite
based solutions to extend the service life of municipal utility lift
stations and access infrastructure.
|
·
|
Mining
: We
manufacture and install piping, ductwork, tanks and other structures for
the mining industry, including the White Pine Copper
Refinery. We also fabricate composite tanks, fittings and
relining services for the chlor-alkali manufacturer, ERCO Worldwide
(Canada).
|
·
|
Environmental
Compliance:
We engineer, manufacture and service
composite-based odor control systems for Tyson Foods (Arkansas), Tonka
(Minnesota) and SCP Controls
(Minnesota).
|
·
|
Pulp
and Paper:
We provide composite storage and piping
solutions to pulp and paper manufacturers New Page (Ohio), International
Paper (Memphis), Smurfit-Stone (Chicago), Glatfelter (Pennsylvania), Boise
Cascade (Idaho), Domtar (Canada), Georgia Pacific (Atlanta), Verso Papers
(Memphis) and Weyerhaeuser
(Washington).
|
Manufacturing
Facilities and Processes
We lease
a new 73,000 square foot composites manufacturing plant in Wisconsin Rapids,
Wisconsin from M&W. We have the option to expand this plant by an
additional 316,650 square feet. We are in negotiations to acquire
adjacent land from the local municipality that would allow for a further 350,000
square foot expansion of our manufacturing facilities. The plant has
advanced climate control capabilities, critical in manufacturing processes using
industrial carbon fibers, as well as bulk materials storage facilities that
incorporate what we believe
to be the
latest and most advanced designs. Our bulk material storage
facilities exceed all current and envisioned environmental and workplace safety
standards. The plant and material storage facilities have direct rail
and highway access. We also have the ability to lease from RCH
Enterprises, Inc., modularly, up to 150,000 square feet of climate controlled
storage space as a distribution hub for carbon fiber and epoxy
resin. This space is located within five miles of the existing
plant.
Our plant
currently features four automated filament winders: (i) a computer-controlled,
dual-mandrel filament winder, the Ultra Helical model manufactured by Magnum
Venus, capable of producing, simultaneously, two 16-foot diameter, 43-foot long
products; (ii) an automated single-mandrel filament winder, Model 20C
manufactured by Dura-Winder, capable of producing a product up to 24 feet in
diameter and 20 feet long; (iii) two automated, single-mandrel filament winders,
Model 10C manufactured by Dura-Winder, each capable of producing a product up to
7 feet in diameter and 20 feet long; (iv) a vertical filament winder capable of
producing product 20 to 30 feet in diameter and 12 feet long; and (v) we have
ordered an Ultra Helical filament winder manufactured by Magnum Venus, capable
of producing product up to 40 feet in diameter and 40 feet in
length.
Based on
a standard product output, we have a fixed plant production capacity of 10
million pounds of finished standard product annually. Full build-out
of the current plant would triple that capacity to 30 million pounds, and
development of the adjacent land would add another 40 million pounds in
capacity, for a total Wisconsin Rapids production capability of 70 million
pounds of finished product. We currently operate at an annual
production rate equivalent of 4.5 million pounds of finished standard
product.
Mobile
Production Capability
We use
mobile fabrication capability to service the rapidly growing FGD
market. We are able to produce more than 70% of our FGD component
content directly on the client’s site, allowing us to expand FGD revenues
substantially without significant investment in new manufacturing
facilities. We are completing our own RTP-1 accreditation in order to
become one of only nine organizations meeting the standard
globally. We believe that our mobile FGD capability already exceeds
the RTP-1 standards. We currently employ one of the country’s leading
specialists in FGD who sits on the Accreditation Committee for the RTP-1
standard. The power generation industry must convert power plants in
order to meet stringent FGD standards by 2015, and we believe that vendor
companies with RTP-1 accreditation enjoy a substantial advantage over the
competition.
Competition
We face
robust competition in most of our markets, and several of our competitors are
involved in several of our geographic markets. We believe that our
move into the new manufacturing facility in August 2007, the addition of new,
automated filament winding equipment in 2007, the expansion of our field service
crews in 2008, and continued investment in workforce training will enable us to
strengthen our competitive position in the markets we serve. We
believe these investments have substantially increased production capacity and
thereby improved our competitive position in the markets we
serve. Based on information gained from numerous years of bidding
potential projects, we believe there are no dominant competitors in our current
or anticipated market sectors. The following lists major competitors
of which we are aware in each of our major markets:
Composite
tanks for bio-fuel storage, mining, pulp and paper and petrochemical
:
Belding
Tank Technologies, Inc. (Michigan), Ershigs, Inc. (Washington), Tankinetics,
Inc. (Arkansas) and Design Tanks, Inc. (South Dakota). We believe
that our manufacturing capacity is more advanced than that of our competitors in
this sector.
Flue gas
desulfurization
:
Tankinetics,
Inc. (Arkansas), Ershigs, Inc. (Washington), AN-COR Industrial Plastics, Inc.
(New York), Augusta Fiberglass, Inc. (South Carolina), Plasticon Europe, B.V.
(Netherlands). We believe that the overwhelming unmet demand driven
by the 2015 regulatory deadline for power plants in the United States provides
more than adequate market growth opportunity for us despite our competition in
this area.
Water
management and storage
:
Belding
Tank Technologies (Michigan), Ershigs, Inc. (Washington), Tankinetics, Inc.
(Arkansas), Design Tanks, Inc. (South Dakota) and one main piping manufacturer,
Future Pipe Industries (Dubai). We anticipate substantial growth in
demand for quality water storage and management
infrastructure over
the next five years, and believe that the competitive environment in this sector
will become more favorable for us.
Our key
geographic markets are in North America, and there is no significant competition
from overseas production facilities in any of our market sectors. We
believe that we enjoy certain manufacturing advantages over several of our
competitors with extensive use of automated fabrication processes and our highly
productive work force. We believe these advantages will continue to
drive our competitive value as we expand our share of existing markets and enter
new ones.
Major
Customers
We have
three customers that accounted for approximately 71% of our revenues in
2007. One of these customers, Martin Manufacturing, accounted for 47%
of total 2007 revenues. The same three customers accounted for
approximately 54% of our outstanding accounts receivable at the end of
2007. Our largest customer operates in the bio-fuel and water storage
and handling sector and has been developing several major
projects. Given the current and planned projects, we anticipate that
Martin Manufacturing will continue to be a major customer for some
time. Our expected revenues from these three customers will be
approximately 50% of total revenues during 2008.
Major
Suppliers
We use
three main suppliers of raw composites materials in our manufacturing
operations. Payments to those suppliers accounted for 59% of all raw
materials purchased in 2007. The same three suppliers accounted for
52% of all outstanding accounts payable at the end of 2007.
We have
established relationships with several domestic and foreign suppliers of the raw
materials used in our production processes and will use these sources according
to material availability and pricing. In the event our primary
suppliers are unable to continue to supply our raw materials requirements, there
are several alternative suppliers available to fulfill our supply
needs. We have not experienced supply procurement problems regarding
the primary raw materials used in the production process.
Employees
At
October 14, 2008, we employed 86 full-time employees, 28 of which are
represented by the United Association of Plumbers and Steamfitters under a
contract that expires on May 31, 2009, and six of which are represented by
the United Association of Journeymen and Apprentices of Plumbing and Pipefitting
Industry of the United States and Canada under a contract which expires on May
31, 2009. We believe that our relationship with all of our employees
is good.
Government
Regulation of the Environment and Occupational Health and Safety
We are
subject to various environmental laws and regulations that apply to the
production, use and sale of composites, emissions into the air, discharges into
waterways and other releases of materials into the environment and the
generation, handling, storage, transportation, treatment and disposal of waste
material. We endeavor to ensure the safe and lawful operation of our
facilities in the manufacture and distribution of products, and we believe we
are in material compliance with all applicable laws and
regulations.
We
maintain a disciplined environmental and occupational safety and health
compliance program and conduct periodic inspections of our facilities and
processes to identify and categorize potential environmental
exposures
and safety hazards, including compliance issues and any actions that may be
required to address them. This effort can result in process or
operational modifications, the installation of pollution control devices or
cleaning up grounds or facilities. We believe that we are in material
compliance with all applicable requirements.
We
incurred a total of $478,278 in regulatory compliance expenses in 2007, and
$16,540 in 2006. Our regulatory compliance expenses in 2007 were
largely driven stemming from start up of our new plant and the associated
regulatory approvals of health and safety, environmental protection and other
systems.
Going
forward, we believe that compliance with all current government regulations will
not have a material
adverse
effect on our results of operations or financial condition. The risk
of additional costs and liabilities, however, is inherent in certain plant
operations and certain products produced at our plant, as is the case with other
companies in the composites industry. Therefore, we may incur
additional costs or liabilities in the future. Other developments,
such as increasingly strict environmental, safety and health laws, regulations
and related enforcement policies, discovery of unknown conditions, and claims
for damages to property, persons or natural resources resulting from plant
emissions or products could also result in additional costs or
liabilities.
A number
of foreign countries and domestic communities have enacted, or are considering
enacting, laws and regulations concerning the use and disposal of composite
materials. Widespread adoption of these laws and regulations, along
with public perception, may have an adverse impact on sales of our
products. More stringent regulation of the use and disposal of
composites may have an adverse effect on our business.
Legal
Proceedings
From time
to time, we anticipate that we may become involved in litigation relating to
claims arising out of our operations in the normal course of
business. We are not currently a party to any material legal
proceedings.
Plan
of Operation and Development
We are
embarking on a simultaneous, four-part expansion and diversification strategy
that relies on our core operating strengths of strong commitment to quality,
consistent reputation for reliable delivery, significant use of advanced
manufacturing methodologies, and a highly skilled and productive labor
force. All four parts fit within a strategic umbrella encompassing
activities that promote “clean technology”, including expansion and
diversification into alternative energy and environmental compliance
sectors.
Part
1:
We plan to expand aggressively within our existing
market sectors: bio-fuel, FGD, municipal infrastructure, mining, environmental
compliance, pulp and paper, and field services product lines. Three
of these sectors (bio-fuel, municipal infrastructure, mining, and FGD) are only
at the earliest stages of using composites, and we believe that we will be well
positioned to deepen our vendor relationships with existing clients as well as
broaden our penetration to include other clients. Market growth in
this sector is driven by regulatory requirements. For example, the
federal government has mandated FGD for power generation plants by 2015,
environmental requirements for elimination of the use of mercury in the
production of chlorine-related products, and federal mandates for bio-fuel
production increasing from 6 billion gallons in 2007 to 36 billion in
2012.
Of
particular note is our ability to expand more aggressively into FGD services for
the power generation industry. Using mobile production teams, we plan
to penetrate this sector by adding additional mobile units and dedicating a
portion of our fixed plant to support those teams. We believe that
our ability to access particularly well qualified personnel from the Wisconsin
labor market will continue to provide a strong platform for FGD market
growth. We also believe securing the RTP-1 accreditation will enhance
our ability to price services above sector averages. We plan to
increase our field services capacity in parallel with the growth of our mobile
manufacturing capability. We believe this field services division
will be well positioned to penetrate the growing market for repairing fiberglass
blades on wind towers around North America.
Our innovative designs for
retrofitting composite liners into existing municipal utility lift stations
represents an enormous growth opportunity for us in the near and mid-term.
Our solution reduces the cost of repairing flood-related damage to these lift
stations by as much as 65%. With our delivery partners, we expect to
capture a substantial portion of the post-Katrina and post-Ike hurricane damage
contracts.
Going
forward, bio-fuel growth presents an attractive opportunity for
us. The government regulation mandating a six-fold increase in
bio-fuel production over five years did not consider the lack of transport and
storage infrastructure for bio-fuels in the United States. The
industry will need to expand its efforts to deliver the needed complement of
tanks, piping, valves and other components for delivery of bio-fuels to the
final consumer.
We will
expand our mining sector support and production services to take advantage of a
significant upswing in North American mining operations due to increased
commodity pricing and substantial expansion of commodity demand in China,
Indonesia and other parts of the world.
We plan
to diversify into the manufacture of composite components for other “clean
technology” applications and alternative energy markets, including, for example,
building tank/hulls and ancillary structures for methane digesters used in the
production of farm-derived bio-fuel.
Part
2:
We are entering the market for distributing carbon fiber
and epoxy resin raw materials to wind system component
manufacturers. Our strategy is to become a significant distributor
for carbon fiber fabric, yarn and compatible epoxy resins for use in the growing
wind energy industry in North and South America. We plan to
capitalize on a strong industry trend to build and install larger wind turbines
with longer, lighter blades designed to increase the efficiency of the turbine’s
energy generating performance and to shift manufacture of nacelles and rotors
from steel to carbon fiber and other composite materials.
We are
negotiating an exclusive distribution agreement covering the Western Hemisphere
with a large Asian-based manufacturer of industrial grade epoxy resin for
fabrication using carbon fiber, and we are in the final stages of negotiating a
distribution agreement for industrial grade carbon fiber fabrics and yarns
with another major Asian supplier. We are currently negotiating
agreements to supply several of the largest manufacturers of wind turbine blades
and ancillary components. Here, growth is driven by increasing demand
for larger turbines, longer, lighter and stiffer blades, and maintenance-free,
lighter structural components, as well as a lingering shortage in supply of
suitable carbon fiber and compatible resins. We also plan to supply
epoxy resin to wind energy manufacturers who are using conventional fibers in
their component design.
Part
3:
We intend to diversify into the manufacture of
composite components for wind energy systems, especially blade assemblies,
nacelle housings and rotor components. Use of composites in blade
manufacturing is at an early stage in the wind-energy industry. Many
of the advanced manufacturing processes, material selection, and product designs
that we have deployed in our tank and piping manufacturing business have not yet
been deployed to the wind energy industry. We intend to become a
major manufacturer of wind blades, blade components, and other system components
by introducing these composite manufacturing advancements into the wind energy
industry. We are pursuing negotiations with two large wind energy
system integrators to manufacture blade structural elements, and we have begun
negotiations to meet a full blade-manufacturing requirement. This
sector continues to expand rapidly, evidenced by recent announcements of
multi-billion dollar investments by large companies into wind energy over the
next decade. We believe that the use of carbon fiber in the
manufacture of blades alone will improve operating economics of a wind turbine
significantly, further accelerating the growth trends for wind
energy.
Part
4:
We see an opportunity to produce structural components for
transportation infrastructure, including new construction and repair of existing
infrastructure using carbon fiber. We intend to position ourselves as
a manufacturer of these components as this market continues to
develop.
Taken
together, we believe that our four-part strategy will help to establish our
company as the early-stage leader in the use of advanced composites across the
alternative energy and environmental compliance and protection industries,
providing a promising platform for sustainable and managed growth.
Our
business plan will require two early tranches of funding. The initial
tranche of up to $10 million will provide the capital necessary to purchase
additional mobile winders that will accelerate our penetration of the FGD market
as well as the repair market for blades on wind turbines. The first
tranche will also provide important working capital for the expansion of our
carbon fiber and resin distribution division as well as our wind blade component
manufacturing efforts. This initial tranche will be raised through a
private placement of convertible debentures and common stock purchase
warrants. To date, we have sold debentures in the principal amount of
more
than
$4,500,000. We have used a portion of these funds to make down
payments for the purchase of manufacturing equipment and for start-up costs
associated with the formation of our Field Services Division.
The
second tranche of approximately $15 million will provide the initial capital
required for rapid expansion into the wind energy market, including development
of a new 330,000 square foot blade manufacturing facility. That
capital will come largely from exercise of the common stock purchase warrants
sold with the debentures from the first tranche of financing. There
can be no guarantee that the common stock purchase warrants will be
exercised. If such warrants are not exercised, we may be forced to
pursue other sources of debt or equity financing to continue to develop our
business plan. We have not yet identified any additional sources of
debt or equity financing and such additional financing may not be available to
us upon favorable terms or at all.
The
remainder of our current business plan will be financed through retained
earnings, although we envision the possibility of acquisition in order to expand
our capacity more quickly and secure strategic market
presence. In
such an event, we may need to raise additional funds through the sale of debt or
equity instruments.
Discussion
and Analysis of AFT’s Operations and Financial Condition
The
following discussion should be read in conjunction with the AFT financial
statements and the related notes included herein. This discussion
contains forward-looking statements that involve risks and
uncertainties. Actual results could differ significantly from those
projected in the forward-looking statements as a result of many factors,
including those discussed in “
Risks of our Business
” and
elsewhere in this report.
Overview:
We
acquired AFT as our wholly-owned subsidiary as of October 14,
2008. The acquisition is treated as a recapitalization of our company
with AFT’s historical financial information. AFT began operations in
1995 as M&W. All operating assets and liabilities were
transferred to AFT, a newly formed S-Corporation on January 1,
2005. In 2007, M&W sold its former manufacturing facility and
built a larger facility in Wisconsin Rapids, Wisconsin. In connection
with the sale of the former facility, AFT moved its operations to the new,
larger facility. M&W, wholly-owned by our majority shareholder,
continues to own the manufacturing facility and land used by AFT. We
have an irrevocable option to purchase the manufacturing facility and land from
M&W for $4,500,000. M&W is considered a variable interest
entity whose financial statements are consolidated with AFT for financial
reporting purposes. All significant intercompany transactions and
accounts were eliminated in consolidation.
FPF
formerly operated out of the same manufacturing facility as AFT, but has
relocated to a separate facility. FPF was formerly considered a
variable interest entity due to AFT guaranteeing its debts. We
believe FPF will not be considered a variable interest entity at the year
ended December 2008 because AFT no longer guarantees any of FPF’s liabilities,
it has moved to a new facility, and it will have sufficient capital to operate
on its own.
The
discussion of the results of our operations and financial condition included
herein includes the operations and assets of M&W and FPF. We did
not acquire M&W or FPF as part of the Share Exchange
transaction. We anticipate purchasing the land and buildings
constituting our current manufacturing facility from M&W prior to the June
2009 expiration of our option. The revenues and expenses attributable
to M&W and FPF should not be considered part of AFT. The
discussion below separates the revenues and expenses attributable to M&W and
FPF in order to provide an indication of what can be expected to continue after
the Share Exchange transaction and after the exercise of our option to purchase
the plant from M&W.
Results of
Operations:
For the Six Months Ended June 30,
2008 and 2007.
For the six months ended June 30, 2008 and
2007, AFT generated $3,569,325 and $2,204,168 of consolidated revenue,
respectively. Revenue attributable to M&W and FPF represented
$306,976 and $56,329 of total consolidated revenue for the six months ended June
30, 2008 and 2007, respectively. The increased consolidated revenue
of $1,365,157 for the six months ended June 30, 2008 represents 61.9% growth in
revenue over the six months ended June 30, 2007. For the six months
ended June 30, 2008, $250,647 of the revenue increase, or 18.3% of total growth,
is attributable to M&W and FPF. Our revenue growth continued to
be the result of volume increases in product sales in the bio-fuel sector and
several other large projects across other markets that AFT has
supplied. For the six months ended June 30, 2008, AFT recorded
$121,406
of incremental revenue from bio-fuel related tanks compared to the six months
ended June 30, 2007. Additionally, for the six months ended June 30,
2008, AFT supplied several large projects and began the start-up of our field
services division resulting in additional revenue growth of $814,484 compared to
the six months ended June 30, 2007. The remainder of the increase
over the comparable period was due to price increases, mostly
inflationary. AFT’s largest customer accounted for 46.7% of its total
sales for the six months ended June 30, 2008 compared to 63.6% for the six
months ended June 30, 2007.
The cost
of goods sold in the six months ended June 30, 2008 increased in connection with
the revenue growth. Cost of goods sold was $3,029,524 and $1,963,204
during the six months ended June 30, 2008 and 2007,
respectively. Cost of goods sold attributable to M&W and FPF
represented $264,885 and $74,629 for the six months ended June 30, 2008 and
2007, respectively. The increased cost of goods sold of $1,066,320
for the six
months
ended June 30, 2008 represents a 54.3% increase over the six months ended June
30, 2007 and is a result of increased revenue and manufacturing overhead
associated with the new plant. $190,256 of that increase, or 17.8%,
is attributable to M&W and FPF. The major components of cost of
goods sold are raw materials used in manufacturing, manufacturing labor, and
manufacturing overhead. The primary raw materials used in the
manufacturing processes are isophathalic, polyester, and vinyl-ester resins and
fiberglass. Manufacturing labor includes wages, employment taxes,
employee benefits, and union expenses. The major components of
manufacturing overhead are rent and utilities for the manufacturing facility,
travel and lodging expense associated with field service activities,
manufacturing supplies, and depreciation of manufacturing
equipment. For the six months ended June 30, 2008, manufacturing
overhead increased to 19% of consolidated sales from 12% of consolidated sales
for the six months ended June 30, 2007. The increases in
manufacturing overhead are primarily due to increased costs associated with the
new manufacturing facility which includes depreciation expense.
Gross
profit for the six months ended June 30, 2008 and 2007 was $539,801 and
$240,964, or 15.1% and 10.9% of revenue, respectively. Gross profit
(loss) attributable to M&W and FPF for the six months ended June 30, 2008
and 2007 was $42,091 and $(18,300), respectively. When taken
separately, AFT’s gross profit was approximately 15.3% and 12.1% of its revenue
in the six months ended June 30, 2008 and 2007, respectively. AFT has
realized improvement in gross profit in 2008 from a higher output to labor ratio
in manufacturing and efficiencies from its new manufacturing
equipment. These improvements have been partially offset by increases
in manufacturing overhead associated with the new plant and start-up costs of
the field service division.
Consolidated
selling, general and administrative expenses were $1,024,966 and $491,660 for
the six months ended June 30, 2008 and 2007, or 28.7% and 22.3% of revenue,
respectively. Consolidated selling, general and administrative
expenses are net of eliminations of rental activity for M&W of $219,000 and
$25,500 in the six-month periods ended June 30, 2008 and 2007,
respectively. Selling, general and administrative expenses of FPF and
M&W were $62,061 and $11,266 in the six months ended June 30, 2008 and 2007,
or 6.1% and 2.3% of total consolidated selling, general and administrative
expenses, respectively. The increase in expenses is primarily due to
increased administrative headcount to support the growing operations which
resulted in added expenses of $429,313 and increased overhead associated with
the larger facilities which resulted in added expenses of $41,208 for the six
months ended June 30, 2008.
AFT
recognized a one-time gain on the sale of the land and building of $100,220 in
the six months ended June 30, 2007. This gain was due to M&W’s
sale of the former manufacturing facility and is not attributable to
AFT.
(Loss)
from operations was $(485,165) and $(150,476) for the six months ended June 30,
2008 and 2007, respectively. Income from operations attributable to
M&W and FPF was $199,030 and $96,154 for the six months ended June 30, 2008
and 2007, respectively. After removing the M&W and FPF income,
the (loss) from operations was $(684,196) in the six months ended June 30, 2008
compared to (loss) from operations of $(246,630) in the six months ended June
30, 2007. The $437,566 increase in loss from operations in 2008 is
primarily due to the increase in manufacturing overhead and selling, general and
administrative expenses incurred in 2008.
Interest
expense was $171,806 and $33,687 for the six months ended June 30, 2008 and
2007, respectively. Interest expense relating to M&W and FPF for
the six months ended June 30, 2008 and 2007 was $104,724 and $11,698,
respectively. Interest expense increased $138,119, or 410%, in the
six months ended June 30, 2008 compared to the six months ended June 30,
2007. The overall increase is due to increased short- and long-term
debt
borrowings
in 2008 relating to the new manufacturing facility and equipment and working
capital lines of credit to fund increased operations. AFT was either
a co-borrower or a guarantor on all of the consolidated company’s
debt.
Consolidated
(loss) before non-controlling interest in variable interest entities was
$(656,971) and $(181,383) for the six months ended June 30, 2008 and 2007,
respectively. The income attributable to M&W and FPF was $94,306
and $84,456 for the six months ended June 30, 2008 and 2007, respectively, and
has been subtracted out to arrive at the net (loss) attributable to AFT totaling
$(751,277) and $(265,839) for the six months ended June 30, 2008 and 2007,
respectively. The increased loss in 2008 is largely due to the 108.5%
increase in selling, general and administrative expenses in 2008 as discussed
above.
Effective
January 1, 2008, AFT elected to revoke its S-Corporation status thereby becoming
a C-Corporation for income tax purposes. As a result, a net income
tax benefit of $185,000 was recorded for the six months ended June 30,
2008. At June 30, 2008, this net tax benefit consisted of a one-time
expense of $110,000 to
record
the net deferred tax liabilities at January 1, 2008 due to the change in tax
status offset by a net deferred tax benefit totaling $295,000 for the six months
ended June 30, 2008. For the six months ended June 30, 2007, a
provision for income tax was not recorded since the company filed income taxes
as an S-Corporation. Net (loss) after taxes for the six months ended
June 30, 2008 and 2007 was $(566,277) and $(265,839), respectively.
For the Years Ended December 31, 2007
and 2006.
For the years ended December 31, 2007 and 2006, AFT
generated $6,541,256 and $4,663,305 of consolidated revenue,
respectively. Revenue attributable to M&W and FPF represented
$168,836 and $12,798 of total consolidated revenue in 2007 and 2006,
respectively. The increased revenue of $1,877,951 in 2007 represents
40.3% growth in revenue over 2006. $156,038 of that increase, or 8.3%
of total growth, is attributable to M&W and FPF. AFT’s revenue
growth was primarily attributable to volume increases in product sales to the
bio-fuel sector and several other large projects across various markets that it
has supplied. For the year ended December 31, 2007, AFT recorded
$913,100 of incremental revenue from bio-fuel related tanks compared to the year
ended December 31, 2006. Additionally for the year ended December 31,
2007, AFT supplied several other large projects resulting in additional revenue
growth of $613,194 compared to the year ended December 31, 2006. The
remainder of the increase over the comparable period was due to small price
increases, mostly inflationary. AFT’s largest customer accounted for
47.3% of total AFT sales for the year ended December 31, 2007 compared to 32.3%
for the year ended December 31, 2006.
The cost
of goods sold in 2007 increased in connection with the revenue
growth. Cost of goods sold was $5,215,245 and $3,711,715 during the
years ended December 31, 2007 and 2006, respectively. Costs of goods
sold attributable to M&W and FPF represented $171,361 and $12,151 in 2007
and 2006, respectively. The increased cost of goods sold of
$1,503,530 represents a 40.5% increase over 2006, or approximately the same
amount of growth as revenue. $159,210 of that increase, or 10.6%, is
attributable to M&W and FPF. The major components of cost of
goods sold are raw materials used in manufacturing, manufacturing labor, and
manufacturing overhead. The primary raw materials used in
manufacturing processes are isophathalic, polyester, and vinyl-ester resins and
fiberglass. Manufacturing labor includes wages, employment taxes,
employee benefits, and union expenses. The major components of
manufacturing overhead are rent and utilities for the manufacturing facility,
travel and lodging expense associated with field service activities,
manufacturing supplies, and depreciation of manufacturing
equipment. For the year ended December 31, 2007, manufacturing
overhead increased to 11% of sales from 10% of sales for the year ended December
31, 2006. The primary increases in manufacturing overhead are
increased costs associated with the new manufacturing facility which AFT began
occupying in August 2007.
Gross
profit for the years ended December 31, 2007 and 2006 was $1,326,011 and
$951,590, or 20.3% and 20.4% of revenue, respectively. Gross profit
(loss) attributable to M&W and FPF in 2007 and 2006 was $(2,525) and $647,
respectively. When taken separately, AFT’s gross profit was
approximately 20.8% and 20.4% of its revenue in 2007 and 2006,
respectively. Gross profit in 2008 should continue to increase due to
being in the new facility for the entire year and from new equipment
efficiencies.
Consolidated
selling, general and administrative expenses were $1,085,521 and $587,483 for
the years ended December 31, 2007 and 2006, and represents 16.6% and 12.6% of
revenue, respectively. Consolidated selling, general and
administrative expenses are net of eliminations of rental activity for M&W
of $188,500 and $48,000 in 2007 and 2006, respectively. Selling,
general and administrative expenses of FPF and M&W were $49,119 and $25,769
in 2007 and 2006, or 4.5% and 4.4% of total consolidated selling, general and
administrative
expenses,
respectively. The increase in expenses is primarily due to (i)
one-time costs associated with moving to a new manufacturing facility which
increased expenses by approximately $25,000 in 2007; (ii) fees and other charges
associated with obtaining financing and regulatory approval for the new
manufacturing facility which increased expenses by $1,351 in 2007; (iii)
increased administrative headcount to support the growing operations which
increased expenses by $455,888 in 2007; (iv) increased overhead associated with
larger facilities which increased expenses by $19,904 in 2007; and (v) legal and
accounting fees associated with the preparation and audit of financial
statements which increased expenses by $49,818 in 2007.
AFT
recognized a one-time gain on the sale of the land and building of $100,220 in
2007. This gain is due to M&W’s sale of the former manufacturing
facility and is not attributable to AFT.
Income
from operations was $340,710 and $364,107 for the years ended December 31, 2007
and 2006, and represents 5.2% and 7.8% of revenue,
respectively. Income from operations attributable to M&W and FPF
was
$237,076 and $22,878 in 2007 and 2006, respectively. After
removing the M&W and FPF income, income from operations in 2007 decreased to
$103,634, or 1.6% of revenue. The $237,595 decrease in 2007 is
primarily due to the increase in selling, general and administrative expenses
observed in 2007.
Interest
expense was $132,274 and $53,153 for the years ended December 31, 2007 and 2006,
respectively, an increase of $79,121 or 148.9%. Interest expense
relating to M&W and FPF for the years ended December 31, 2007 and 2006 was
$68,881 and $13,590, respectively. The overall increase is due to
increased short- and long-term debt borrowings in 2007 relating to the new
manufacturing facility and equipment and working capital lines of credit to fund
AFT’s increased operations. Additionally, interest expense increased
from the amortization of deferred financing charges totaling $1,351 in
2007. In 2007, interest expense was partially offset by $2,783 in
finance charges to customers. AFT was either a co-borrower or a
guarantor on all of the consolidated company’s debt.
Consolidated
income before non-controlling interest in variable interest entities was
$211,219 and $310,954 for the years ended December 31, 2007 and 2006,
respectively. The income attributable to M&W and FPF was $168,195
and $9,288 for 2007 and 2006, respectively, and has been subtracted out to
arrive at the net income of $43,024 and $301,666 for the years ended December
31, 2007 and 2006, respectively, a decrease of $258,642 or
85.7%. This decrease is largely due to the 84.8% increase in selling,
general and administrative expenses in 2007 as discussed above.
Liquidity and Capital
Resources:
AFT’s
primary source of liquidity is cash generated from operations and from
short-term financing arrangements. We believe that we will have
available resources to meet our liquidity requirements, including debt service,
for the remainder of 2008. If cash flow from operations is
insufficient to fund our debt service and other obligations, we may be required
to increase our borrowings, reduce or delay capital expenditures, and seek
additional capital or refinance our indebtedness. There can be no
assurance, however, that we will continue to generate cash flows at or above
current levels or that we will be able to maintain our ability to borrow under
revolving credit facilities.
AFT has
financed operating cash needs as well as final fixed asset purchases for its new
manufacturing facility primarily through the use of short-term borrowings which
has contributed to current liabilities exceeding current assets at the end of
2007.
We
anticipate increases in our cash needs associated with our new manufacturing
facility. We estimate increases in rental expense for 2008 of
$242,000. Increased cash needs associated with debt service payments
related to manufacturing equipment are estimated to $261,000. Initial
costs associated with becoming a public company are expected to be approximately
$200,000. Additional cash needs for employment agreements and income
taxes may also be incurred as agreements are established and the company
generates profits.
For the Six Months ended June 30,
2008 and 2007.
Operating activities used $515,634 and $87,133
of cash for the six-month periods ended June 30, 2008 and 2007,
respectively. The decrease was largely due to the larger loss in the
six months ended June 30, 2008 of $(566,277) compared to a loss for the six
months ended June 30, 2007 of $(265,839). Working capital items also
contributed to the net decrease in cash provided from operating
activities. Cash
was provided from a decrease in accounts receivable totaling $65,803 for the six
months ended June 30, 2008 compared to $120,692 for the six months ended June
30, 2007. Cash provided from an increase in accounts payable was
$82,510 for the six months ended June 30, 2008 compared to $338,529 for the six
months ended June 30, 2007. Offsetting these net increases in cash
were smaller uses of cash to increase inventory levels and other current
assets. We also had positive operating cash flow from increases in
accrued expenses and a positive impact from non-cash items such as increased
depreciation associated with new equipment.
Investing
activities used $433,868 of cash and provided $315,837 of cash during the
six-month periods ended June 30, 2008 and 2007,
respectively. Investment in manufacturing equipment was the primary
use of cash during the six months ended June 30, 2008. The sale of
the former manufacturing facility was the primary cause of cash provided in the
six months ended June 30, 2007.
Financing
activities provided $953,303 of cash and used $233,635 of cash for the six-month
periods ended
June 30, 2008 and 2007, respectively. Financing
activities for the period ended June 30, 2008 included payments on long-term
debt of $142,518 and net payments to stockholders through M&W and FPF
totaling $35,000. These distributions to the stockholders were
primarily for income taxes due personally relating to the pass through income
from M&W and FPF. Net short-term bank borrowings and lines of
credit were $1,130,821 for the six months ended June 30, 2008. In
comparison, financing activities for the six months ended June 30, 2007 included
payments on long-term debt of $248,962 and net payments to stockholders, through
AFT and the variable interest entities M&W and FPF, of
$218,931. These uses of cash were partially offset by net short-term
borrowings of $234,258.
For the Years Ended December 31, 2007
and 2006.
Operating activities provided $113,673 of cash for
the year ended December 31, 2007, while $95,513 of cash was used for the year
ended December 31, 2006. The increase in cash provided from operating
activities for 2007, compared to 2006, was due primarily to the significant
increases in accounts payable associated with higher purchase volumes supporting
increased production activities, longer credit terms from vendors, and receiving
some large customer deposits prior to year end. Increases in non-cash
items such as accrued payroll activity associated with increased headcount and
increased depreciation driven by the expanded manufacturing facility and
equipment were also recorded in 2007, compared to 2006. The variable
interest entities, FPF and M&W, also recorded improved results in 2007,
compared to 2006, resulting in additional increases in cash provided from
operations. Revenue increases in 2007 also contributed positively to
cash provided from operations through accounts receivable but at a slower rate
than 2006 due to several large contracts being supplied in December
2006. Also, AFT and FPF increased inventory levels to meet growing
demand during 2007, compared to 2006, significantly decreasing the total cash
provided by operations during 2007.
Investing
activities provided $181,722 of cash and used $156,200 of cash over the same
periods. The cash provided by investing activities in 2007 was due to
the sale of the prior manufacturing facility by M&W netting $372,670 in
proceeds, which was offset by a $190,948 investment in new capital
equipment.
Financing
activities used $278,855 of cash and provided $238,088 of cash for the years
ended December 31, 2007 and 2006, respectively. Financing activities
for 2007 included payments on long-term debt of $399,260 and net payments to
stockholders of $234,198 (consisting of AFT payments totaling $90,699 and
M&W and FPF payments totaling $143,499). These distributions to
the stockholders were primarily for income taxes due personally relating to the
pass through income from AFT, M&W and FPF. These uses of cash
were partially offset by net short-term bank borrowing of
$364,613. In comparison, financing activities for 2006 included
payments on long-term debt of $45,479 and net payments to stockholders, through
AFT and the variable interest entities M&W and FPF, of
$108,863. These uses of cash were offset by net short-term bank
borrowing of $392,430.
In 2007,
M&W constructed the new manufacturing facility at Commerce Drive which AFT
leases. Financing for the facility was completed with a $3,000,000
Industrial Revenue Bond issued by the City of Wisconsin Rapids. This
is a 5.50% bond expiring July 2027. Monthly principal and interest
payments are $20,766. Plant and process equipment for the new
facility was financed with two additional $500,000 Industrial Revenue Bonds
expiring July 2014. These bonds carry interest at
5.75%. Monthly principal and interest payments for each of these
bonds is $7,266. In addition to the $1,000,000 in revenue bonds for
equipment, AFT received a $500,000 Note from the City of Wisconsin Rapids for
additional equipment purchases. This note expires April, 2012 and
carries interest at 2%.
The
Industrial Revenue Bond Agreement states that the Industrial Revenue Bonds are
secured by all of the assets of AFT, M&W and FPF and that insurance be
maintained on the collateral. The Bond Agreement requires compliance
with standard covenants, including financial covenants relating to ratios of
tangible net worth, debt service coverage, and total indebtedness to tangible
net worth. In addition, a $4,000,000 key man life insurance policy
must be maintained upon the life of Jamie Mancl, our current
President. The Industrial Revenue Bonds become immediately due and
payable upon breach of any covenants or representations made by the Bond
Agreement and upon other customary events of default.
At
December 31, 2007, AFT was not in compliance with various restrictive financial
covenants associated with the industrial revenue bonds used to finance the
expansion. The tangible net worth covenant requires AFT to maintain
at least $600,000 in net worth. AFT’s tangible net worth was $477,871
and $331,733 at December 31,
2007 and
June 30, 2008, respectively. The debt service coverage ratio covenant
requires AFT to maintain at least 1.25 coverage. AFT’s debt service
coverage ratio was .76 and .10 at December 31, 2007 and June 30, 2008,
respectively. The indebtedness to tangible net worth covenant
requires AFT to maintain a ratio of less than 3.5 to 1.0. AFT’s
indebtedness to tangible net worth ratio was 11.90 and 12.24 at December 31,
2007 and June 30, 2008, respectively. AFT received a waiver letter
dated March 28, 2008 on these covenant defaults from our lenders. The
terms of the waiver suspend the covenant requirements through December 31,
2008. AFT received another waiver letter dated August 26, 2008, which
waives these same three covenants through September 30, 2009. The
next calculation date for these covenants will be December 31, 2009, unless the
covenants are modifed prior to that date. AFT and the bank realize that
these covenants may need to be renegotiated to meet AFT's future needs and both
parties plan to assess this during the 4th quarter of 2008.
In the
upcoming year, we plan to finance operations, including equipment purchases and
other capital expenditures, with working capital and external
financing. We believe that we will need additional funds in the near
term to finance operations and meet revenue, profitability, growth,
diversification and other strategic goals for the foreseeable
future. In addition, we continue to evaluate and assess potential
strategic acquisition targets. Cash requirements from any future
acquisitions may be substantial; however, we cannot estimate the cash or other
consideration that may be required to finance such transactions. We
planned to be able to procure financing upon reasonable terms in order to
finance operations and acquisition activity. However, if we are
unable to do so due to unfavorable credit market conditions, or if we do not
meet anticipated future revenue goals, we are committed to taking actions
necessary to ensure the conservation of adequate cash to continue to finance our
operations.
Since
December 31, 2007, AFT increased its borrowing under the $500,000 bond with the
City of Wisconsin Rapids by $67,673 to fully use the available loan
amount. The borrowing financed additional manufacturing
equipment. On January 3, 2008, AFT secured a short-term bank note for
$200,000 at 7.75% interest per annum. On March 20, 2008, AFT secured
another short-term bank note for $200,000. Both notes were for
working capital purposes, are due three months from the date of issuance or upon
demand thereafter, carry interest at 7.75% per annum, and are secured by the
business assets and receivables and certain customer purchase
orders. On May 1, 2008, AFT entered into a capital lease agreement
with Yale Materials Handling for a forklift. The term of the lease is
60 months with monthly lease payments of $516.
AFT has
entered into various operating leases to support operations in
2008. AFT leases several vehicles to support the Field Services
Division as well as office space in Hastings, Michigan. Total monthly
lease payments for these vehicles and office space are $3,273. AFT
leases our manufacturing facility at Commerce Drive, Wisconsin Rapids, Wisconsin
from M&W who is considered a variable interest entity. This lease
was established on August 1, 2007 for a 20 year term. From August 1,
2007 to December 31, 2007, AFT paid $30,000 per month. Starting on
January 1, 2008, the lease calls for monthly payments of $35,000 with an annual
adjustment to reflect the changes in the cost of living. AFT plans to
exercise its option to purchase the manufacturing facility from M&W by
assuming the related debt and paying the remainder of the purchase price in
$500,000 cash and a promissory note. AFT has obtained a third-party
valuation of the property valuing the property at $4,500,000.
To
address current cash needs and provide a remedy for the bank covenant
violations, we are in the process of raising up to $10 million through a private
offering of convertible debentures.
As stated
above, if cash flow from operations is insufficient to fund the debt service and
other obligations, we may be required to further increase borrowings, reduce or
delay capital expenditures, and seek additional capital
or
refinance the indebtedness. In May 2008, we received a $300,000
short-term bridge note from a consultant and shareholder to assist with
operating cash flow. If the above actions do not come to fruition in
the expected time frame, we may have to take more drastic steps and cut back on
operations and curtail expenses.
Summary of AFT’s Significant
Accounting Policies:
The
discussion and analysis of financial condition and results of operations are
based on AFT’s financial statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. While AFT’s
significant accounting policies are described in more detail in the financial
statements, we believe the following accounting policies to be critical to the
judgments and estimates used in preparation of the financial
statements:
Use of
Estimates:
The preparation of these financial statements
requires management to make estimates
and judgments that affect the
reported amounts of assets, liabilities and expenses and related disclosure of
contingent assets and liabilities. Management reviews its estimates
on an on-going basis and bases estimates on historical experience and on various
other assumptions that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about these estimates under
different assumptions or conditions.
Principles
of Consolidation and Basis of Presentation:
Financial results
are consolidated in accordance with Financial Accounting Standards Board (“
FASB
”) Interpretation
No. 46R,
Consolidation of
Variable Interest Entities
(“
FIN 46R
”), which
requires a company to consolidate entities determined to be variable interest
entities (“
VIEs
”), for which AFT
is the VIE’s primary beneficiary. For the periods covered by the
financial statements, AFT has determined that M&W and FPF are VIEs and that
we are the primary beneficiary of such VIEs, as defined by FIN
46R. M&W owns the manufacturing facility which AFT leases and FPF
was a wholesale distributor of fiberglass pipe fittings to AFT and other
third-party companies. Our majority stockholder is the 100% owner of
M&W and FPF, which results in our management holding a significant influence
over their continuing operations. Although AFT holds no legal
ownership in the VIEs, the VIEs could not support and finance their operations
on their own as suggested by AFT’s guarantee of all of the debt of the VIEs, and
due to the fact that AFT would likely absorb any expected future
losses. As such, AFT concluded that it is required to consolidate the
results of operations of the VIEs. As of June 30, 2008 and December
31, 2007, AFT had not funded any losses of the VIEs.
The
financial statements and footnotes have been presented on a consolidated basis
to include its variable interests in M&W and FPF. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Trade
Accounts Receivable:
Trade accounts receivable are recorded at
the invoiced amount. The allowance for doubtful accounts is AFT’s
best estimate of the amount of probable credit losses in existing accounts
receivable. The allowance is determined based on historical write-off
experience and is reviewed monthly. Individual accounts with past due
balances over 90 days are specifically reviewed for
collectability. All other balances are reviewed on a pooled
basis. Account balances are charged against accounts receivable, as
bad debt, after all means of collection have been exhausted and the potential
for recovery is considered remote. Finance charges are accrued
monthly, but not recognized on past due trade receivables until management
determines that such charges will be collected. Standard terms of
sale are Net 30 days, however, due to competitive market conditions, customers
in certain market segments such as pulp & paper are requiring lengthened
credit sale terms such as 45 or 60 days. Moving forward, AFT
anticipates that the mix of customers in the markets it currently serves will
remain similar to historic levels and thus the collection period for receivables
for these customers will also remain at similar levels. As AFT
pursues larger contracts in new markets, it intends to seek pre-payments and
progress payments attempting to shorten overall collection periods for
receivables.
Inventories:
Inventories
are stated at the lower of cost or market, with cost determined on the first-in,
first-out (FIFO) basis. Allowances are recorded for estimated excess
and obsolete inventories based primarily on forecasts of product demand and
estimated production requirements.
Property
and Equipment:
Property and equipment are stated at
cost. Depreciation is provided on the straight-line method over the
estimated useful lives of the respective assets. Maintenance and
repairs are charged to expense as incurred; major renewals and betterments are
capitalized. As items are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in operating income.
The
estimated useful lives for computing depreciation are as follows:
|
Years
|
Building
|
40
|
Building
and land improvements
|
15
|
Computer
equipment
|
3
to 5
|
Manufacturing
equipment
|
5
to 10
|
Furniture
and office equipment
|
5
to 10
|
Vehicles
and trailers
|
5
|
Intangible
Assets:
Intangible assets are stated at cost. They
comprise a non-compete agreement and
customer list acquired through an
asset purchase acquisition in 2005. Also, included is deferred
financing costs incurred with the bond financing for the construction of the new
manufacturing facility in 2007. The non-compete agreement is being
amortized on the straight-line method over its 3-year life. The
customer list is being amortized 33% per year based on a discounted cash flow
analysis. Financing costs are amortized over the life of the related
bonds ranging from 7 to 20 years, with the amortization being recorded to
interest expense.
Impairment
of Long-Lived Assets:
The recoverability of intangible assets
and other long-lived assets is assessed periodically or whenever adverse events
or changes in circumstances or business climate indicate that the previously
anticipated expected cash flows warrant a reassessment. When such
reassessments indicate the potential of impairment, all business factors are
considered and, if the carrying value of such intangible assets and other
long-lived assets are not likely to be recovered from future undiscounted
operating cash flows, they will be written down for financial reporting purposes
to their fair values.
Revenue
Recognition:
AFT’s manufacturing processes include open
molding, resin transfer molding, filament winding, vacuum infusion, and hand
lay-up of fiberglass reinforced composites materials. The average
length of time for completion of contracts is approximately two weeks with a
range of 1 day to several months.
AFT
derives revenue primarily from the sale of manufactured products (tanks, piping,
& ductwork), installation of those tanks on occasion and
service/repair. In accordance with SEC Staff Accounting Bulletin No.
104, “Revenue Recognition” (“SAB 104”), revenue is recognized when persuasive
evidence of an arrangement exists, the price is fixed and determinable, transfer
of title has occurred, services have been rendered or delivery has occurred per
contract terms and collection of the related receivable is reasonably
assured. At times, customer deposits and other receipts are received
and are deferred and recognized when earned. Shipping and handling
costs are classified as a cost of goods sold component.
Most of
the products are sold without installation services included. Revenue
for product only sales is generally recognized at the time of shipment and if
all other contractual obligations have been satisfied. When a
combination of products and installation services is provided, the arrangement
is evaluated under Emerging Issues Task Force Issue (“EITF”) No. 00-21 “Revenue
Arrangements with Multiple Deliverables.” Most installation work is
generally done in a short period of time (less than 30 days) and the
corresponding revenue is recorded upon the completion of the installation and
all contractual obligations have been met.
For any
service/repair, most work is performed on a time and material basis and revenue
is recognized upon performance.
AFT
generally provides a standard one year warranty for product and service
sales. Accruals necessary for product warranties are estimated based
upon historical warranty costs which in the past have been immaterial to the
financial statements as a whole. As of June 30, 2008, no accrual for
warranty expense has been recorded due to immateriality.
Income
Taxes:
AFT elected under the Internal Revenue Code to be an
S-Corporation. In lieu of corporation income taxes, the stockholders
of an S-Corporation are taxed on their proportionate share of taxable
income. No provision or liability for federal or state income taxes
is provided in the audited financial statements.
Effective
January 1, 2008, AFT terminated its S-Corporation election. It is now
taxed as a C-Corporation and will be subject to income and deferred taxes on
future taxable income or losses.
As
previously noted, AFT consolidates financial results under the provisions of FIN
46R. For income tax purposes, however, AFT is not considered a
consolidated entity. As a result, income generated by M&W and
FPF, as well as any losses recognized, are excluded from AFT’s net income that
is ultimately reported in corporate tax returns.
Effect of recently issued
accounting standards:
In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“
SFAS
”) No. 141R,
Business Combinations
(“
SFAS 141R
”), which establishes
principles and requirements for how the acquirer of a
business recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS
141R is effective for fiscal years beginning after December 15,
2008. Early adoption is not permitted. We are currently
evaluating the effect of the adoption of SFAS 141R, but do not presently
anticipate it will have a material impact on our consolidated financial position
or results of operations.
In
December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51
(“
SFAS 160
”), which establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies
that a non-controlling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. We have evaluated the effect of
the adoption of SFAS 160, but do not presently anticipate it will have a
material effect on our consolidated financial position or results of
operations.
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FASB Statement No.
115
(“
SFAS
159
”). This standard permits an entity to choose to measure
many financial instruments and certain other items at fair
value. This standard is effective for financial statements issued for
fiscal years beginning after November 15, 2007. AFT adopted the
provisions of SFAS 159 on January 1, 2008. It did not elect to
measure any financial assets or liabilities using the fair value option of SFAS
159. We will assess, at each measurement date, whether to use the
fair value option on any future financial assets or liabilities as permitted
pursuant to the provisions of SFAS 159.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(“
SFAS
157
”). This standard clarifies the principle that fair value
should be based on the assumptions that market participants would use when
pricing an asset or liability. Additionally, it establishes a fair
value hierarchy that prioritizes the information used to develop those
assumptions. In February 2008, the FASB issued FASB Staff Position
No. 157-2 (“
FSP 157-2
”),
which delayed the effective date by which companies must adopt the provisions of
SFAS 157. FSP 157-2 defers the effective date of SFAS 157 to fiscal
years beginning after November 15, 2008, and interim periods within those fiscal
years. The adoption of SFAS 157 is not anticipated to have a material
impact on our financial position, results of operations, or cash
flows.
Risks
of our Business
The
actual results of the combined company may differ materially from those
anticipated in these forward-looking statements. We operate in a
market environment that is difficult to predict and that involves significant
risks and uncertainties, many of which will be beyond our
control. Additional risks and uncertainties not presently known to
us, or that are not currently believed to be important to you, if they
materialize, also may adversely affect the combined company.
While we are
beyond the development stage, we are a company with limited operating history
that makes it difficult to predict, reliably, future growth and operating
results.
We have not demonstrated that we can: (i) expand our
manufacturing capacity in a manner that will enable us to remain profitable;
(ii) ensure the steady supply of raw materials that will enable us to carry out
our commercial activities; (iii) establish many of the business functions
necessary to expand existing operations and enter new markets as defined by our
four-part growth
strategy,
including sales, marketing, administrative and financial functions, and
establish compliant financial controls; or (iv) respond effectively to
competitive pressures.
We have had
limited profitability since inception.
Since 1995, we have
generated limited profits. Our future operating profits are
uncertain, and we may never sustain profitable operations.
Our current
capital needs are significant.
Cash generated by operations is
currently insufficient to meet our operating needs and debt service
obligations. We have significant contractual obligations to make
payments on our debts and leases. For several years, we have relied
on external sources of financing to meet our ongoing
obligations. There can be no assurance that continued financing will
be available to meet our significant obligations. If we are unable to
meet our current contractual obligations, it may be forced to seek protection in
bankruptcy or receivership proceedings, and may be forced to liquidate assets to
pay our obligations.
We plan
to invest in additional plant and equipment and expand into new markets and need
significant additional capital to do so. We have pursued and plan to
continue our pursuit of financing to expand our operations. We cannot
provide any assurance that we will successfully raise additional capital and we
may not be able to meet our contractual obligations, expand our operations, or
pursue our articulated business plan.
Our future
capital needs are likely to be significant.
We will need to
raise significant amounts of additional funds in the future. These
funds may not be available on acceptable terms. For the past few
years, we have relied on external sources of financing to meet our capital
needs. There is not sufficient cash to meet our capital requirements
to expand production capabilities and meet the goals defined in our growth
strategy within existing markets and across new markets. We will seek
additional funds from public and/or private offerings of debt and/or equity
securities, borrowings under credit lines or other sources.
Our
future capital requirements will depend on many factors, including:
·
|
revenues
generated by sales of manufactured
products;
|
·
|
costs
required to develop new manufacturing processes for new
sectors;
|
·
|
expenses
incurred in manufacturing and selling
products;
|
·
|
costs
associated with anticipated plant
expansions;
|
·
|
other
costs associated with capital expenditures;
and
|
·
|
the
number and timing of any acquisitions or other strategic
transactions.
|
As a
result of these factors, it is likely that we will need to raise additional
funds, and these funds may not be available on favorable terms, or at
all. Furthermore, if we issue equity or debt securities to raise
additional funds, our existing stockholders may experience dilution, and new
equity or debt securities may have rights, preferences and privileges senior to
those of existing stockholders. If we cannot raise funds on
acceptable terms, we may not be able to develop or enhance our products, expand
our product offerings, execute our business plan, take advantage of future
opportunities, or respond to competitive pressures or unanticipated customer
requirements.
Our principal
shareholders have the ability to exercise control over our affairs and
management.
As a result of the Share Exchange, our principal
shareholder owns approximately 60% of our common stock and has significant
influence over matters requiring approval by our shareholders. Among
other things, our majority shareholder has the ability to elect all of the
members of our board of directors and exercise control over our affairs and
management.
Our success will
depend on our ability to attract and retain key personnel and technical
staff.
We believe future success will depend on our ability to
manage our growth successfully, including attracting and retaining skilled
personnel for our manufacturing operations. Hiring qualified
management and technical personnel may be difficult due to the limited
population base surrounding Wisconsin Rapids, Wisconsin. If we fail
to attract and retain personnel, particularly management and technical
personnel, we may not be able to continue our planned operations and
expansions.
Our business
depends upon good relations with employees.
We may experience
difficulties in maintaining appropriate relations with unions and
employees. About 41% of our employees are represented by
labor
unions. The risk of labor disputes, work stoppages or other
disruptions in production could adversely affect us. If we cannot
successfully negotiate or renegotiate our collective bargaining agreements or if
the negotiations take an excessive amount of time, we may be faced with a
prolonged work stoppage. Any work stoppage could have a material
adverse effect in the productivity and profitability of our manufacturing
facility or in our operations as a whole. We have not experienced any
work stoppages due to employee relations in our history.
If we do not
effectively manage our growth, our business resources may become strained and
our results of operations may be adversely affected.
We expect
to increase our total employee headcount as we continue to expand our
business. This growth will be proportional to our expansion of our
manufacturing capabilities. This may provide challenges to our
organization and may strain management and operations. We may
misjudge the
amount of time or resources that will be required to
effectively manage any anticipated or unanticipated growth in the business or we
may not be able to attract, hire and retain sufficient personnel to meet our
needs. If we cannot scale our business growth appropriately, maintain
control over expenses or otherwise adapt to anticipated and unanticipated
growth, our business resources may become strained, we may not be able to
deliver proposed products in a timely manner and our results of operations may
be adversely affected.
We are subject to
potential product liability and other claims and it may not have the insurance
or other resources to cover the costs of any successful
claim.
Defects in our products could subject it to potential
product liability claims that our products caused some harm to the human
body. Our product liability insurance may not be adequate to cover
future claims. Product liability insurance is expensive and, in the
future, may not be available on terms that are acceptable, if it is available at
all. Plaintiffs may also advance other legal theories supporting
their claims that our products or actions resulted in some harm. A
successful claim brought against us in excess of any insurance coverage that it
has could significantly harm our business and financial condition. We
have not experienced any product liability claims in its history.
Demand for and
supply of our products and services may be adversely affected by several
factors, some of which cannot be predicted or controlled, that could adversely
affect our results of operations.
Several factors may affect
the demand for and supply of our products and services, including:
·
|
economic
downturns in the significant markets that we
serve;
|
·
|
changes
in federal mandates that encourage rapid growth in the markets that we
serve;
|
·
|
product
obsolescence, technological changes that unfavorably alter the value/cost
proposition of our products and
services;
|
·
|
competition
from existing and unforeseen composites
manufacturers;
|
·
|
declines
in general economic conditions or reductions in industrial production
growth rates, both domestically and globally, which could impact our
customers ability to pay amounts
owed;
|
·
|
changes
in environmental regulations that would limit our ability to sell products
and services in specific markets;
and
|
·
|
inability
to obtain raw materials or supply products to customers due to factors
such as supplier work stoppages, supply shortages, plant outages or
regulatory changes that may limit or prohibit overland transportation of
certain materials and exogenous factors, like severe
weather.
|
If any of
these factors occur, the demand for and supply of our products and services
could suffer, which would adversely affect our results of
operations.
Our manufacturing
operations are subject to hazards and other risks associated with composites
manufacturing and the related storage and transportation of raw materials,
products and wastes.
Our manufacturing operations are subject
to the usual hazards and risks associated with composites manufacturing and the
related storage and transportation of raw materials, products and
wastes. These hazards and risks include, but are not limited
to:
·
|
explosions,
fires, inclement weather and natural
disasters;
|
·
|
mechanical
failure resulting in protracted or short duration unscheduled
downtime;
|
·
|
regulatory
changes that affect or limit the transportation of raw
materials;
|
·
|
inability
to obtain or maintain any required licenses or
permits;
|
·
|
interruptions
and environmental hazards such as discharges or releases of toxic or
hazardous substances or gases into the environment or workplace;
and
|
·
|
storage
tank leaks or other issues resulting from remedial
activities.
|
The
occurrence of any of these operating problems at our facility may have a
material adverse effect on our productivity and profitability, during and after
the period of these operating difficulties. These operating problems
may also cause personal injury and loss of life, severe damage to or destruction
of property and equipment and environmental damage. We are subject to
present and potential future claims with respect to workplace exposure,
workers’ compensation and other matters. Although we maintain
property and casualty insurance of the types and in the amounts that we believe
are customary for the industry, we are not fully insured against all potential
hazards that are incident to the business.
Extensive
environmental, health and safety laws and regulations impact our operations and
assets, and compliance with these regulations could adversely affect our results
of operations.
Our operations on our real property are subject
to extensive environmental, health and safety laws and regulations at the
national, state and local governmental levels. The nature of our
business exposes it to risks of liability under these laws and regulations due
to the production, storage, transportation, recycling or disposal and/or sale of
materials that can cause contamination or personal injury if they are released
into the environment or workplace. Environmental laws may have a
significant effect on the costs of these activities involving raw materials,
finished products and wastes. We may incur substantial costs,
including fines, damages, criminal or civil sanctions, remediation costs, or
experience interruptions in our operations for violations of these
laws.
Also,
federal and state environmental statutes impose strict, and under some
circumstances, joint and several liability for the cost of investigations and
remedial actions on any company that generated environmental waste, arranged for
disposal of the waste, transported the waste to the site or selected the site,
as well as on the owners and operators of these sites. Any or all of
the responsible parties may be required to bear all of the costs of clean up,
regardless of fault or legality of the waste disposal or ownership of the site,
and may also be subject to liability for natural resource damages. We
may incur substantial costs if it is found that we have generated environmental
waste at our manufacturing facility, our previous manufacturing facility, or
during the transport to or installation of our products at client
sites. It is possible that we will be identified as a potentially
responsible party for identified waste sites in the future, which could result
in being assessed substantial investigation or cleanup costs.
We accrue
costs for environmental matters that have been identified when it is probable
that these costs will be required and when they can be reasonably
estimated. However, accruals for estimated costs, including, among
other things, the ranges associated with accruals for future environmental
compliance and remediation, may be too low or we may not be able to quantify the
potential costs. We may be subject to additional environmental
liabilities or potential liabilities that have not been
identified. We expect to continue to be subject to increasingly
stringent environmental, health and safety laws and regulations. We
anticipate that compliance with these laws and regulations will continue to
require capital expenditures and operating costs, which could adversely affect
our results of operations or financial condition.
We face
competition from other composites manufacturing companies, which could adversely
affect its sales and financial condition.
We actively compete
with companies that produce the same or similar products, and in some instances
with companies that produce different products that are designed for the same
end uses. We encounter competition in price, delivery, service,
performance, product innovation, and product recognition and quality, depending
on the product involved.
Many of
our competitors are larger, which makes them more efficient, thereby reducing
their cost of materials and permitting them to be more
competitive. Their increased size permits them to operate in wider
geographic areas and enhance their ability to compete in other areas such as
research and development and customer service, which could also reduce our
profitability.
We expect
that competitors will continue to develop and introduce new and enhanced
products, which could cause a decline in the market acceptance of our
products. In addition, our competitors could cause a reduction in the
selling prices of some of our products as a result of intensified price
competition. Competitive pressures
could
also result in the loss of major customers. An inability to compete
successfully could have an adverse effect on our results of operations,
financial condition and cash flows.
We may
also experience increased competition from companies that offer products based
on alternative technologies and processes that may be more competitive or better
in price or performance, causing us to lose customers and result in a decline in
sales volume and earnings. Additionally, some of our customers may
already be or may become large enough to justify developing in-house production
capabilities. Any significant reduction in customer orders as a
result of a shift to in-house production could adversely affect our sales and
operating profits.
Risks
Related to our Common Stock
An active trading
market for our common stock may never develop and you may have no ability to
sell
the
shares.
There is a limited public trading market for our
common stock. The Financial Industry Regulatory Authority Inc.
(“
FINRA
”) has approved
the entry of a price quotation for our common stock on the OTC Bulletin Board
system and our symbol is ENCC. There can be no assurance that a
market for our common stock will be established or that, if established, a
market will be sustained. Therefore, if you purchase shares of our
common stock you may be unable to sell them. Accordingly, you should
be able to bear the financial risk of losing your entire
investment.
The OTC
Bulletin Board is not an exchange and, because trading of securities on the OTC
Bulletin Board is often more sporadic than the trading of securities listed on
an exchange or NASDAQ, you may have difficulty reselling any of the shares that
you may purchase. Even after the Share Exchange, we have fewer than
30 stockholders of record. With so few holders, an active trading
market may never develop in our common stock and it may be difficult or
impossible to sell your shares.
Future financing
transactions could result in dilution.
In order to raise
additional funds for expansion and operating needs, we may sell restricted
stock, options, warrants, and convertible securities and/or convertible debt to
investors in public or private placements of such securities. Since
any stock sold in a private placement will be restricted, the stock may be sold
at a discount to market prices, and the exercise price of the warrants or
options sold in like manner is likely to be at or even lower than market
prices. These transactions will cause dilution to existing
stockholders. Also, from time to time, stock or options may be issued
to officers, directors, employees, or consultants with prices equal to
market. Exercise of in-the-money options and warrants will result in
dilution to existing stockholders. The amount of dilution will depend
on the spread between the market and exercise price, and the number of shares
involved. In addition, such shares would increase the number of
shares in the “public float” and could depress the market price for our common
stock.
Our common stock
is subject to penny stock regulation that may affect the liquidity for our
common stock.
The Securities and Exchange Commission has
adopted rules that regulate broker or dealer practices in connection with
transactions in penny stocks. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange system). The penny stock rules
require a broker or dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Securities and Exchange Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker or dealer also must provide the customer
with bid and offer quotations for the penny stock, the compensation of the
broker or dealer, and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The penny stock rules also require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the broker or
dealer must make a special written determination that a penny stock is a
suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction.
These
disclosure requirements may have the effect of reducing the level of trading
activity in any secondary market for our stock that becomes subject to the penny
stock rules, and accordingly, stockholders of our common stock may find it
difficult to sell their securities, if at all.
Management
Our
management consists of the following:
Name
|
Age
|
Position
|
Samuel
W. Fairchild
|
54
|
Chief
Executive Officer and Director
|
Jamie
Lee Mancl
|
36
|
President
and Director
|
Jennifer
Lynn Mancl
|
33
|
Vice
President and Director
|
Jeffrey
S. Keuntjes
|
43
|
Controller
|
Kenneth
A. Iwinski
|
45
|
General
Counsel and Secretary
|
Daniel
P. Wergin
|
66
|
Director
|
Thomas
J. Klismith
|
49
|
Director
|
The term
of office of each director is expected to end at the next annual meeting of our
stockholders or when such director’s successor is elected and
qualified. The term of office of each officer ends at the next annual
meeting
of our board of directors, expected to take place immediately after the next
annual meeting of stockholders, or when such officer’s successor is elected and
qualified. We are not aware of any material proceedings to which any
of the directors, or any associate of any such director, is a party adverse to
us or has a material interest adverse to us or to any of our
subsidiaries.
Jamie Lee
Mancl is married to Jennifer Lynn Mancl. Other than the Mancls, there
are no family relationships between any of our directors and
officers. During the last five years, none of the listed officers or
directors have (i) had any bankruptcy petition filed by or against any business
of which such person was an officer; (ii) had any conviction in a criminal
proceeding or been subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses); (iii) been subject to any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or
(iv) been found by a court of competent jurisdiction (in a civil action), the
SEC or the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities law.
Samuel
W. Fairchild – Chief Executive Officer and Director.
Mr.
Fairchild has served as a director of AFT since April 2008 and as Chief
Executive Officer since October 2007. Previously, he served as Chief
Executive Officer and Director of Tower Tech Holdings (NASDAQ: TWRT), the
predecessor to Broadwind Energy (BWEN), from 2006 – 2007, where he led the
growth in market capitalization from $40 million to nearly $1 billion through
process restructuring, market repositioning, capital formation and responsive
corporate governance. Mr. Fairchild has been the President of the
Tadpole Group, an investment portfolio-holding company focused on harvesting
value from transformation, since August 2004. He has also been
Managing Director of Theseus Capital Partners, an investment advisory firm,
since August 2004. Prior to founding Theseus in 2004, Mr. Fairchild
co-led the Global Government, Transport & Infrastructure Group of PA
Consulting Group, a role he assumed in 1999 as a result of PA’s acquisition of
GKMG Consulting Services, a strategic consulting firm he founded in
1992. During that period, he also served as “shadow CEO” of Air New
Zealand following the demise of its wholly-owned subsidiary, Ansett Airlines,
where he led the Crown’s acquisition of most of the outstanding shares and the
comprehensive turnaround of the airline. He has also served in the
White House as senior advisor to President Reagan and Vice President Bush for
transportation policy, and was George Bush’s Acting Assistant Secretary of
Transportation for Policy and International Affairs. Following his
government service, Mr. Fairchild was a member of the management group at the
Carlyle Group, where he helped to establish BDM International’s transportation
group before BDM was sold to TRW, Inc. Since May 1996, Mr. Fairchild
has been the Chairman of the Board of Schiphol North America, the owner of JFK’s
$1.4 billion Terminal Four and the international arm of Amsterdam Airport’s
Schiphol Group.
Jamie
Lee Mancl – President and Director.
Mr. Mancl has served as
President and as a director of AFT since its inception in January,
2005. From 1995 to January 2005, he owned and operated M&W
Fiberglass, LLC, the predecessor company to AFT. He is also the owner
of Fiberglass Piping & Fitting Company, a firm he founded in
2006. Mr. Mancl has an extensive background managing success in the
composites industry. From 1989 to 1995, he served in various
management positions at Industrial Fiberglass. Mr. Mancl has a
successful track record managing the day-to-day operations of a growing
composites fabricator, and is an industry-recognized expert in
composites.
Jennifer
Lynn Mancl – Vice President and Director.
Mrs. Mancl has
served as Vice President of AFT since its inception in January, 2005 and as a
director since April 2008, where she has been responsible for all administrative
processes, marketing and external affairs. From 1998 to 2003, Mrs.
Mancl worked for Stora Enso North America, where she gained plant floor
experience in the pulp and paper industry as well as considerable experience in
purchasing and negotiations. In 2002, Mrs. Mancl earned a B.A. degree
in Business Administration and Marketing from Lakeland College in
Wisconsin.
Jeffrey
S. Keuntjes – Controller.
Mr. Keuntjes has served as
Controller of AFT since June, 2007. From 2001 to June, 2007, he
served as a Senior Business Analyst for Domtar Industries, a pulp and paper
manufacturer in Wisconsin. He previously served as a Controller for
Stevens Point Area Catholic Schools from 1998 to 2001. Mr. Keuntjes’
background includes 19 years of progressively more responsible financial
management responsibilities. He is a member of the Institute of
Management Accountants, has earned CSOX certification from the Sarbanes-Oxley
Institute and holds a BA and an MBA from the University of Wisconsin,
Madison.
Kenneth
A. Iwinski – General Counsel and Secretary.
Mr. Iwinski has
served as General Counsel and Secretary of AFT since April 2008. From
May 2007 until April 2008, Mr. Iwinski was involved in the private practice of
law. From September 2006 to May 2007, he served as Managing Member
and Counsel for Sun Prairie Solutions Group, LLC, an early stage aseptic
manufacturing business focused on providing national production and distribution
of functional beverages through a joint venture with a global branded food
company. From 1998 to May 2006, Mr. Iwinski served as Vice President
- Legal and Secretary for Northland Cranberries, Inc., a publicly traded and
vertically integrated food production, processing and sales
business. From June 2006 to September 2006, Mr. Iwinski continued to
provide legal services to Northland Cranberries, Inc. as an independent
consultant. From 1992 until he joined Northland, Mr. Iwinski was an
attorney with the business law firm of Meissner Tierney Fisher & Nichols,
S.C., in Milwaukee, Wisconsin. In addition to his comprehensive
business law experience, Mr. Iwinski has significant experience in human
resources, corporate governance, compliance and risk management.
Daniel
P. Wergin – Director
. Mr. Wergin has served in as a director
of AFT since April 2008, following his resignation from the Board of Broadwind
Energy. (NASDAQ: BWEN). Mr. Wergin was a founder of Broadwind’s
predecessor company, Tower Tech Holdings (NASDAQ:TWRT), and the company’s first
Chief Financial Officer. He has also been the President of Choice,
Inc., a real estate investment and development company based in Manitowoc,
Wisconsin, since 1970. Mr. Wergin has specialized in real estate
development, leasing, and 1031 exchanges. He has been a member of the
National Association of Realtors and its Certified Commercial Investment
Division since 1975.
Thomas
J. Klismith – Director
. Mr. Klismith has served as a director
of AFT since April 2008. Mr. Klismith has been a Certified Public
Accountant since 1984 an in 1988 he founded Klismith Accounting & Tax Group,
which provides accounting, tax planning, software consulting and financial
advisory services to individuals and businesses in central
Wisconsin. Mr. Klismith has significant experience in tax planning
and preparation, financial reporting, business budgeting and forecasting,
financial, estate and retirement planning and business
consulting. Mr. Klismith is a member of both the American and
Wisconsin Institutes of Certified Public Accountants.
Director
Indemnification
Under the
corporate laws of the State of Nevada and our Amended and Restated Articles of
Incorporation, we have broad powers to indemnify our directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the “
Securities
Act
”). Our Amended and Restated Bylaws also provide for
mandatory indemnification of our directors and executive officers, and
permissive indemnification of our employees and agents, to the fullest extent
permissible under Nevada law. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Conflicts
of Interest and Related Party Transactions
Our
officers and directors are now and may in the future become stockholders,
officers or directors of other companies that may be engaged in business
activities similar to ours. Accordingly, direct conflicts of interest
may arise in the future with respect to such individuals acting on our behalf or
other entities. Moreover, additional conflicts of interest may arise
with respect to opportunities which come to the attention of such individuals in
the performance of their
duties or
otherwise. We do not currently have a right of first refusal
pertaining to opportunities that come to management’s attention insofar as such
opportunities may relate to our business operations.
The
officers and directors are, so long as they remain officers or directors,
subject to the restriction that all opportunities contemplated by our plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to our Company. A breach of this requirement will be a
breach of the fiduciary duties of the officer or director.
All
future affiliated transactions will be made or entered into on terms that are no
less favorable to us than those that can be obtained from any unaffiliated third
party. A majority of the independent, disinterested members of our
board of directors will approve future affiliated transactions.
Jamie L.
Mancl.
Prior to the Share Exchange, Mr. Mancl was the majority
stockholder of AFT and, with his wife, is now our majority
stockholder. He owns 100% of M&W, which owns and leases the
manufacturing plant to AFT. He also owns 100% of FPF, which is a
distributor of fiberglass piping and fitting products. AFT purchases
products from FPF for use in the manufacture of its products.
The
manufacturing facility lease with M&W was entered into on August 1, 2007,
has a term of 20 years and provides for a current monthly rent of $35,000
subject to annual adjustments based on the consumer price
index. M&W is responsible for maintenance of the structural
components of the facility and we are responsible for insurance, utilities,
taxes, and certain repairs and maintenance. Total rent paid to
M&W during 2007 was $178,000 and total rent paid during the first half of
2008 was $210,000. After deductions for depreciation, interest and
other expenses, M&W’s net profit from the lease during 2007 and the first
half of 2008 was $107,191 and $83,178, respectively. AFT has an
irrevocable option to purchase the facility and the land for $4,500,000 which
expires June 18, 2009. The purchase price is based on an independent
third party appraisal and AFT intends to exercise the option prior to
expiration. The purchase is intended to be paid primarily through our
assumption of related debt and payment of $500,000 in cash and/or a promissory
note.
During
2007 and 2006, we purchased products from FPF totaling $143,448 and $3,836,
respectively. During the first half of 2008, FPF sales to AFT totaled
$61,232. The gross profit on sales made to us during 2007 and 2006
were $35,165 and $811, respectively, and the gross profit on sales during the
first half of 2008 totaled $12,338. The board of directors has
reviewed the related party transactions with FPF and determined it is in its
best interest to continue to purchase products from FPF at this time given their
high quality, the limited availability of such products from other suppliers at
a competitive price and the costs to produce or import comparable products;
provided, however, that such transactions are undertaken in good faith and on
such terms and conditions as are fair. On October 13, 2008, we
entered into a supply contract with FPF whereby AFT will purchase FPF’s
products at FPF’s cost.
M&W
Fiberglass, LLC.
M&W, AFT, Jamie Mancl and Jennifer Mancl
are co-borrowers under a Bond Agreement with the City of Wisconsin Rapids and
Nekoosa Port Edwards State Bank (“
Bank
”) pursuant to which
tax-exempt industrial revenue bonds in the amount of $4,000,000 were issued by
the City (“
IRB Debt
”),
$3,000,000 of which was used for the purpose of financing the construction of
the manufacturing facility owned by M&W and leased to AFT and $1,000,000 of
which was used for the purpose of financing the acquisition of equipment owned
by AFT and installed at the facility. In connection with the issuance
of the IRB Debt, AFT and the Bank entered into (i) a Credit Agreement pursuant
to which AFT is obligated as a co-borrower, together with M&W, Jamie Mancl
and Jennifer Mancl, to repay the IRB Debt and (ii) a Security Agreement pursuant
to which AFT provided all of its assets as collateral to secure repayment of the
IRB Debt. As described above, AFT has an option to purchase the
manufacturing facility from M&W which it intends to exercise prior to
expiration of the option.
Fiberglass
Piping & Fitting Company.
FPF previously operated its
business out of the same manufacturing facility that AFT leases from
M&W. FPF occupied approximately 1,000 square feet of the facility
on a rent free basis. The value of the space provided during 2007 and
the first half of 2008 based on the rental payments made to M&W was
approximately $3,200 and $2,877, respectively. As of October 14,
2008, FPF has moved its operations to an offsite location.
FPF
obtained debt financing from the Bank to buy inventory that was secured, in
part, by guarantees and assets of AFT. The outstanding debt financing
arrangements of FPF that were secured by guarantees and assets of AFT are
business notes issued by the Bank as follows:
Date
Issued
|
Interest
Rate
|
Principal
Balance
|
4/16/2007
|
8.25%
|
$79,979
|
6/28/2007
|
8.25%
|
80,000
|
9/28/2007
|
8.25%
|
150,000
|
3/28/2008
|
7.75%
|
62,000
|
5/2/2008
|
8.25%
|
18,000
|
5/8/2008
|
8.25%
|
72,000
|
7/25/2008
|
8.25%
|
260,000
|
Total
|
|
$721,979
|
As of
October 9, 2008, AFT was released by Bank as a guarantor on all of FPF’s debts
and its assets no longer serve as collateral for such debts.
Klismith
Accounting and Tax Group.
Thomas J. Klismith has provided tax,
accounting, and business consulting services to AFT, FPF and M&W for several
years. The following table sets forth payments made and amounts owed to Mr.
Klismith’s firm during the years ending and as of December 31, 2007 and
2006:
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Payments
made by:
|
|
|
|
|
|
|
AFT
|
|
$
|
46,926
|
|
|
$
|
32,644
|
|
FPF
|
|
|
1,465
|
|
|
|
-
|
|
M&W
|
|
|
2,005
|
|
|
|
-
|
|
Total
|
|
$
|
50,396
|
|
|
$
|
32,644
|
|
|
|
|
|
|
|
|
|
|
Amounts
owed by:
|
|
|
|
|
|
|
|
|
AFT
|
|
$
|
7,480
|
|
|
$
|
6,395
|
|
FPF
|
|
|
2,350
|
|
|
|
-
|
|
M&W
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
9,830
|
|
|
$
|
6,395
|
|
Executive
Compensation
The
following table sets forth information regarding the remuneration of AFT’s
executive officers that earned in excess of $100,000 per annum during any part
of the last two completed fiscal years:
Summary
Compensation Table
Name
and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)
|
All
Other Compensation
($)
|
Total
($)
|
Jamie
Lee Mancl,
President
and Director
|
2007
|
$78,946
|
-
|
-
|
21,182
(1)
|
$100,128
|
2006
|
$63,923
|
-
|
-
|
18,316
(2)
|
$82,239
|
Jeffrey
S. Keuntjes,
Controller
|
2007
|
$33,923
|
-
|
-
|
-
|
$33,923
|
2006
|
-
|
-
|
-
|
-
|
-
|
(1)
|
Other
compensation for Mr. Mancl during 2007 includes: (i) $13,791 paid for
health insurance; (ii) $5,000
|
|
health
savings account contribution; and (iii) $2,391 Simple IRA
contribution. Other income during 2007 excludes $187,090
consisting of: (i) $107,191of net profit to M&W from the lease of the
manufacturing facility to AFT; (ii) $35,165 of gross profit to FPF from
the sale of fiberglass piping and fitting products to AFT; (iii) $1,707
representing the value of space within the AFT manufacturing facility
which is occupied by FPF on a rent free basis; and (iv) $43,024 of
pass-through income attributable to Mr. Mancl during 2007 as a result of
his ownership and the S-Corporation status of AFT.
|
(2)
|
Other
compensation for Mr. Mancl during 2006 includes: (i) $11,587 paid for
health insurance; (ii) $5,000 health savings account contribution; and
(iii) $1,918 Simple IRA contribution. Other income during 2006
excludes $302,477 consisting of: (i) $811 of gross profit to FPF from the
sale of fiberglass piping and fitting products to AFT; and (ii) $301,666
of pass-through income attributable to Mr. Mancl during 2006 as a result
of his ownership and the S-Corporation status of
AFT.
|
We do not
have any outstanding unexercised options or equity incentive
awards.
The
following table sets forth information regarding the remuneration of AFT’s
directors, other than those already mentioned in the Summary Compensation Table,
during the last completed fiscal year:
Director
Compensation Table
Name
|
Fees
Earned or Paid in Cash
|
Stock
Awards
|
Option
Awards
|
All
Other Compensation
|
Total
|
($)
|
($)
|
($)
|
($)
|
($)
|
Samuel
W. Fairchild
|
-
|
-
|
-
|
-
|
-
|
Jennifer
Lynn Mancl
|
$39,024
|
-
|
-
|
$1,171
(1)
|
$40,195
|
Daniel
P. Wergin
|
-
|
-
|
-
|
-
|
-
|
Thomas
J. Klismith
|
-
|
-
|
-
|
-
|
-
(2)
|
(1)
|
Other
compensation for Mrs. Mancl during 2007 consisted of $2,391 in Simple IRA
contribution.
|
(2)
|
Mr.
Klismith did not earn any compensation for his services as a director
during 2007. However, Mr. Klismith’s firm, Klismith Accounting
and Tax Group, was paid $50,396 in 2007 for accounting, tax and business
consulting services rendered to AFT, FPF and M&W during that
period.
|
None of
our directors receive any compensation for their respective services as
directors. They have all agreed to serve without compensation until
authorized by our board of directors. We expect to consider and
authorize appropriate compensation for our directors in the near
future.
Market
Price of the Registrant’s Common Equity and Related Stockholder
Matters
Our
common stock is currently quoted in the OTC Bulletin Board (“OTCBB”) under the
symbol “ENCC.” It previously traded under the symbol of “LPME” on the
OTCBB. Although our common stock is quoted in the OTCBB, there is no
established trading market and it has traded on a very limited
basis. Our common stock has not had any trading volume since July 16,
2007 and, as a result, we have not provided historical bid and ask prices for
the common stock.
Holders
and Dividends
After the
Share Exchange, there are twenty-nine (29) holders of our common
stock. We have not paid cash dividends to date and have no plans to
pay any cash dividends in the immediate future. On October 29, 2007,
we declared a 14-for-1 stock dividend to our stockholders of record as of
November 14, 2007, increasing our outstanding common stock to 33,000,000
shares.
Recent
Sales of Unregistered Securities
On
October 14, 2008, we issued 28,750,000 shares of common stock to three persons
in exchange for all of the issued and outstanding shares of
AFT. Also, Diana L. Hassan cancelled 21,750,000 shares of common
stock. After giving effect to the issuance and cancellation, we have
40,000,000 shares of common stock outstanding.
No
underwriters were used in the above stock transactions. We relied
upon the exemption from registration contained in Section 4(2) as to all of the
transactions, as the investors were either deemed to be sophisticated with
respect to the investment in the securities due to their financial condition and
involvement in our business or were accredited investors. Restrictive
legends were placed on the certificates evidencing the securities issued in all
of the above transactions.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding each person who beneficially
owns 5% or more of our common stock and the beneficial ownership of our
directors and officers as of October 14, 2008.
Name and Address of Beneficial Owners
(1)
|
Amount
and Nature of
Beneficial
Ownership
|
Percent of Class for Vote
(2)
|
Jamie
Lee and Jennifer Lynn Mancl
4400
Commerce Drive
Wisconsin
Rapids, Wisconsin 54494
|
24,000,000
(3)
|
60%
|
Integritas,
Inc.
1135
Terminal Way, Suite 209
Reno,
Nevada 89502
|
4,500,000
|
11.3%
|
Samuel
W. Fairchild
|
1,370,000
(4)
|
3.3%
|
Thomas
J. Klismith
|
100,000
(5)
|
0.2%
|
Daniel
P. Wergin
|
80,000
(6)
|
0.2%
|
Jeffrey
S. Keuntjes
|
20,000
(7)
|
-
|
Kenneth
A. Iwinski
|
-
|
-
|
Officers
and directors as a group (7 persons)
|
24,450,000
|
63.7%
|
_______________
(1)
|
Where
persons listed on this table have the right to obtain additional shares of
common stock through the exercise or conversion of other securities within
60 days from October 14, 2008, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of common stock
owned by such persons, but are not deemed to be outstanding for the
purpose of computing the percentage owned by any other
person. Percentages are based on 40,000,000 shares of common
stock outstanding on October 14,
2008.
|
(2)
|
To
our knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person’s name.
|
(3)
|
Jamie
Lee Mancl and Jennifer Lynn Mancl are married and share the voting and
investment power associated with the 24,000,000 shares of common stock
they own.
|
(4)
|
Includes
560,000 shares of common stock issuable upon conversion of Convertible
Debentures and 560,000 shares of common stock issuable upon exercise of
Warrants owned by ECC Investment Partners, LLC. Mr. Fairchild is the
Managing Partner of ECC Investment Partners, LLC and exercises investment
power over that entity.
|
(5)
|
Includes
50,000 shares of common stock issuable upon conversion of Convertible
Debentures and 50,000 shares of common stock issuable upon exercise of
Warrants.
|
(6)
|
Includes
40,000 shares of common stock issuable upon conversion of Convertible
Debentures and 40,000 shares of common stock issuable upon exercise of
Warrants.
|
(7)
|
Includes
10,000 shares of common stock issuable upon conversion of Convertible
Debentures and 10,000 shares of common stock issuable upon exercise of
Warrants.
|
Changes
in Control
The Share
Exchange described above effected a change of control. Our previous
officers and directors resigned in connection with the Share Exchange and five
new directors were appointed.
Item
2.03
|
Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a
Registrant.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
3.02
|
Unregistered
Sales of Equity Securities.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
5.01
|
Changes
in Control of Registrant.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
5.02
|
Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
5.03
|
Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
5.06
|
Change
in Shell Company Status.
|
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
The
disclosure set forth in Item 2.01 of this report is incorporated herein by
reference.
Item
9.01
|
Financial
Statements and Exhibits
|
Regulation
S-K
Number
|
Document
|
2.1
|
Share
Exchange Agreement dated June 26, 2008. (1)
|
2.2
|
First
Amendment to Share Exchange Agreement dated August 8, 2008.
(2)
|
3.1
|
Articles
of Merger effective October 14, 2008
|
3.2
|
Amended
and Restated Articles of Incorporation effective October 14,
2008
|
3.3
|
Amended
and Restated Bylaws adopted October 14, 2008
|
10.1
|
2008
Stock Incentive Plan
|
10.2
|
Industrial
Development Revenue Bonds, Bond Agreement dated February 28,
2007
|
10.3
|
Industrial
Development Revenue Bonds, Promissory Note 2007A dated February 28,
2007
|
10.4
|
Industrial
Development Revenue Bonds, Promissory Note 2007B dated February 28,
2007
|
10.5
|
Industrial
Development Revenue Bonds, Promissory Note 2007C dated February 28,
2007
|
10.6
|
Industrial
Development Revenue Bonds, Credit Agreement dated February 28,
2007
|
10.7
|
Industrial
Development Revenue Bonds, Construction Mortgage, Assignment Of Leases And
Rents and Fixture Filing dated February 28, 2007
|
10.8
|
Industrial
Development Revenue Bonds, Security Agreement dated February 28,
2007
|
10.9
|
Option
Agreement dated June 18, 2008
|
10.10
|
Purchase
and Supply Agreement dated October 13, 2008
|
99.1
|
Unaudited
financial statements as of June 30, 2008
|
99.2
|
Audited
Financial Statements as of December 31, 2007
|
99.3
|
Pro
forma combined Financial Statements as of June 30,
2008
|
__________________
(1)
|
Filed
as an exhibit to the Current Report on Form 8-K dated June 26, 2008, filed
June 27, 2008.
|
(2)
|
Filed
as an exhibit to the Definitive Information Statement on Schedule 14C
filed September 24, 2008.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
ENERGY
COMPOSITES CORPORATION
|
October
17, 2008
|
By:
/s/ Samuel W.
Fairchild
|
|
Samuel W.
Fairchild
|
|
Chief Executive
Officer
|
Financial
Statements and Exhibits
Regulation
S-K
Number
|
Document
|
2.1
|
Share
Exchange Agreement dated June 26, 2008. (1)
|
2.2
|
First
Amendment to Share Exchange Agreement dated August 8, 2008.
(2)
|
3.1
|
Articles
of Merger effective October 14, 2008
|
3.2
|
Amended
and Restated Articles of Incorporation effective October 14,
2008
|
3.3
|
Amended
and Restated Bylaws adopted October 14, 2008
|
10.1
|
2008
Stock Incentive Plan
|
10.2
|
Industrial
Development Revenue Bonds, Bond Agreement dated February 28,
2007
|
10.3
|
Industrial
Development Revenue Bonds, Promissory Note 2007A dated February 28,
2007
|
10.4
|
Industrial
Development Revenue Bonds, Promissory Note 2007B dated February 28,
2007
|
10.5
|
Industrial
Development Revenue Bonds, Promissory Note 2007C dated February 28,
2007
|
10.6
|
Industrial
Development Revenue Bonds, Credit Agreement dated February 28,
2007
|
10.7
|
Industrial
Development Revenue Bonds, Construction Mortgage, Assignment Of Leases And
Rents and Fixture Filing dated February 28, 2007
|
10.8
|
Industrial
Development Revenue Bonds, Security Agreement dated February 28,
2007
|
10.9
|
Option
Agreement dated June 18, 2008
|
10.10
|
Purchase
and Supply Agreement dated October 13, 2008
|
99.1
|
Unaudited
financial statements as of June 30, 2008
|
99.2
|
Audited
Financial Statements as of December 31, 2007
|
99.3
|
Pro
forma combined Financial Statements as of June 30,
2008
|
_______________
(1)
|
Filed
as an exhibit to the Current Report on Form 8-K dated June 26, 2008, filed
June 27, 2008.
|
(2)
|
Filed
as an exhibit to the Definitive Information Statement on Schedule 14C
filed September 24, 2008.
|
30
EXHIBIT 3.1
ARTICLES OF MERGER EFFECTIVE OCTOBER 14,
2008
EXHIBIT 3.2
AMENDED AND RESTATED ARTICLES OF
INCORPORATION
EFFECTIVE OCTOBER 14, 2008
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
ADOPTED OCTOBER 14, 2008
AMENDED
AND RESTATED BYLAWS
OF
ENERGY
COMPOSITES CORPORATION
______________________________
As
adopted October 14, 2008
ENERGY
COMPOSITES CORPORATION
AMENDED AND RESTATED
BYLAWS
TABLE
OF CONTENTS
Section
|
Page
|
|
|
ARTICLE
I - Offices
|
|
|
|
|
1.1
|
Registered
Office
|
1
|
1.2
|
Principal
Office
|
1
|
|
|
|
ARTICLE
II - Stockholders
|
|
|
|
|
2.1
|
Annual
Meeting
|
1
|
2.2
|
Special
Meetings
|
1
|
2.3
|
Place
of Meeting
|
2
|
2.4
|
Notice
of Meeting
|
2
|
2.5
|
Adjournment
|
2
|
2.6
|
Organization
|
2
|
2.7
|
Closing
of Transfer Books or Fixing of Record Date
|
2
|
2.8
|
Quorum
|
3
|
2.9
|
Proxies
|
3
|
2.10
|
Voting
of Shares
|
3
|
2.11
|
Action
Taken Without a Meeting
|
4
|
2.12
|
Meetings
by Telephone
|
4
|
2.13
|
Voting
by Class or Series
|
4
|
2.14
|
Stockholder
Proposals
|
4
|
2.15
|
Conduct
of Meeting
|
5
|
|
|
|
ARTICLE
III - Directors
|
|
|
|
|
3.1
|
Board
of Directors; Number; Qualifications; Election
|
5
|
3.2
|
Powers
of the Board of Directors: Generally
|
5
|
3.3
|
Resignation
|
6
|
3.4
|
Removal
|
6
|
3.5
|
Vacancies
|
6
|
3.6
|
Nominations
of Directors
|
6
|
3.7
|
Regular
Meetings
|
7
|
3.8
|
Special
Meetings
|
7
|
3.9
|
Notice
|
7
|
3.10
|
Quorum
|
7
|
3.11
|
Manner
of Acting
|
8
|
3.12
|
Compensation
|
8
|
ii
3.13
|
Action
Taken Without a Meeting
|
8
|
3.14
|
Meetings
by Telephone
|
8
|
3.15
|
Interested
Directors
|
8
|
|
|
|
ARTICLE
IV – Committees of the Board of Directors
|
|
|
|
|
4.1
|
Committees
|
9
|
4.2
|
Committee
Chairman, Books and Records
|
9
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4.3
|
Alternates
|
9
|
4.4
|
Quorum
and Manner of Acting
|
9
|
|
|
|
ARTICLE
V - Officers and Agents
|
|
|
|
|
5.1
|
Officers
of the Corporation
|
9
|
5.2
|
Election
and Term of Office
|
10
|
5.3
|
Removal
|
10
|
5.4
|
Vacancies
|
10
|
5.5
|
President
|
10
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5.6
|
Vice
Presidents
|
10
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5.7
|
Secretary
|
10
|
5.8
|
Treasurer
|
11
|
5.9
|
Salaries
|
11
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5.10
|
Bonds
|
11
|
|
|
|
ARTICLE
VI - Stock
|
|
|
|
|
6.1
|
Stock
Certificates and Transfers
|
12
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6.2
|
Lost,
Stolen or Destroyed Certificates
|
12
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6.3
|
Transfer
Agents, Registrars, and Paying Agents
|
12
|
|
|
|
ARTICLE
VII - Indemnification of Officers and Directors
|
|
|
|
|
7.1
|
Indemnification;
Advancement of Expenses.
|
13
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7.2
|
Insurance
and Other Financial Arrangements Against Liability of Directors, Officer,
Employees, and Agents
|
13
|
|
|
|
|
|
|
ARTICLE
VIII – Applicability of Certain Statutes
|
|
|
|
|
8.1
|
Acquisition
of Controlling Interest
|
13
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8.2
|
Combinations
with Interested Stockholders
|
13
|
iii
|
|
|
ARTICLE
IX - Execution of Instruments; Loans, Checks and Endorsements; Deposits;
Proxies
|
|
|
|
|
9.1
|
Execution
of Instruments
|
13
|
9.2
|
Loans
|
14
|
9.3
|
Checks
and Endorsements
|
14
|
9.4
|
Deposits
|
14
|
9.5
|
Proxies
|
14
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9.6
|
Contracts
|
14
|
|
|
|
ARTICLE
X - Miscellaneous
|
|
|
|
|
10.1
|
Waivers
of Notice
|
15
|
10.2
|
Corporate
Seal
|
15
|
10.3
|
Fiscal
Year
|
15
|
10.4
|
Amendment
of Bylaws
|
15
|
10.5
|
Uniformity
of Interpretation and Severability
|
15
|
10.6
|
Emergency
Bylaws
|
15
|
|
|
|
Seretary's
Certification
|
15
|
iv
AMENDED AND RESTATED
BYLAWS
OF
ENERGY
COMPOSITES CORPORATION
ARTICLE
I
Offices
1.1
Registered
Office
. The registered office of the Corporation required
by the Chapter 78 of the Nevada Revised Statutes (“NRS”) to be maintained in
Nevada may be, but need not be, identical with the principal office if in
Nevada, and the address of the registered office may be changed from time to
time by the Board of Directors.
1.2
Principal
Office
. The Corporation may have such other office or offices
either within or outside of the State of Nevada as the business of the
Corporation may require from time to time if so designated by the Board of
Directors.
ARTICLE
II
Stockholders
2.1
Annual
Meeting
. Unless otherwise designated by the Board of
Directors, the annual meeting shall be held on the date and at the time and
place fixed by the Board; provided, however, that the first annual meeting shall
be held on a date that is within 18 months after the date on which the
Corporation first has stockholders, and each successive annual meeting shall be
held on a date that is within 18 months after the preceding annual
meeting. If the Corporation’s common stock is listed on a national
stock exchange or Nasdaq and the Corporation is subject to the corporate
governance requirements of such market, the Corporation shall hold its annual
meeting on a date that is within one year after the end of the Corporation’s
fiscal year.
2.2
Special
Meetings
. Special meetings of stockholders of the Corporation,
for any purpose, may be called by the Chairman of the Board, the President, or a
majority of the Board of Directors. Special meetings of the
stockholders shall be called by the Secretary at the request of stockholders
only on the written request of stockholders entitled to cast at least a majority
of all the votes entitled to be cast at the meeting. Such written
request shall state the purpose or purposes of the meeting and the matters
proposed to be acted upon at the meeting and shall be delivered to the principal
office of the Corporation addressed to the Secretary. The Secretary
shall inform the stockholders who make the request of the reasonably estimated
cost of preparing and mailing a notice of the meeting and, upon payment of these
costs to the Corporation, notify each stockholder entitled to notice of the
meeting. At a special meeting no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting.
2.3
Place of
Meeting
. The Board of Directors may designate any place,
either within or outside the State of Nevada, as the place for any annual
meeting or special meeting called by the Board of Directors. If no
designation is made, or if a meeting shall be called otherwise than by the
Board, the place of meeting shall be the Company’s principal offices, whether
within or outside the State of Nevada.
2.4
Notice of
Meeting
. Written notice signed by an officer designated by the
Board of Directors, stating the place, day, and hour of the meeting and the
purpose for which the meeting is called, and the means of electronic
communications, if any, by which stockholders and proxies shall be deemed to be
present in person and vote, shall be delivered personally or mailed postage
prepaid or delivered by any other means set forth in NRS (currently 78.370) to
each stockholder of record entitled to vote at the meeting not less than 10 nor
more than 60 days before the meeting. If mailed, such notice shall be
directed to the stockholder at his address as it appears upon the records of the
Corporation, and notice shall be deemed to have been given upon the mailing of
any such notice, and the time of the notice shall begin to run from the date
upon which the notice is deposited in the mail for transmission to the
stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership, constitutes
delivery of the notice to the corporation, association or
partnership. Any stockholder may waive notice of any meeting by a
writing signed by him, or his duly authorized attorney, either before or after
the meeting.
2.5
Adjournment
. When a
meeting is for any reason adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting. The Board of Directors must fix a new record date
if the meeting is adjourned to a date more than 60 days later than the date set
for the original meeting. If a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting must be given to each
stockholder of record as of the new record date.
2.6
Organization
. The
Chairman of the Board or, if none, the President or any vice president shall
call meetings of stockholders to order and act as chairman of such
meetings. In the absence of said officers, any stockholder entitled
to vote at that meeting, or any proxy of any such stockholder, may call the
meeting to order and a chairman shall be elected by a majority of the
stockholders entitled to vote at that meeting. In the absence of the
Secretary or any assistant secretary of the Corporation, any person appointed by
the chairman shall act as secretary of such meeting. An appropriate
number of inspectors for any meeting of stockholders may be appointed by the
chairman of such meeting. Inspectors so appointed will open and close
the polls, will receive and take charge of proxies and ballots, and will decide
all questions as to the qualifications of voters, validity of proxies and
ballots, and the number of votes properly cast.
2.7
Closing of Transfer Books or Fixing
of Record Date
. The Board of Directors may prescribe a period
not exceeding 60 days before any meeting of the stockholders during which no
transfer of stock on the books of the Corporation may be made, or may fix a day
not more than 60 days before the holding of any such meeting as the day as of
which stockholders entitled to notice of and to vote at such meetings must be
determined. Only stockholders of record on that day are entitled to
notice or to vote at such meeting. If a record date is not fixed, the
record date is at the
close of
business on the day before the day on which the first notice is given or, if
notice is waived, at the close of business on the day before the meeting is
held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders applies to an adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned
meeting.
2.8
Quorum
. Unless
otherwise provided by the Articles of Incorporation, a majority of the voting
power that is present, in person or by proxy, regardless of whether the proxy
has authority to vote on all matters, shall constitute a quorum at a meeting of
stockholders. If less than a quorum is represented at a meeting, a
majority of the shares so represented may adjourn the meeting without further
notice for a period not to exceed 60 days at any one adjournment. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of stockholders so that less than a quorum remains.
Unless
the NRS provides for different proportions, if a quorum is present, action by
the stockholders on a matter other than the election of directors is approved if
the number of votes cast in favor of the action exceeds the number of votes cast
in opposition to the action.
2.9
Proxies
. At all
meetings of stockholders, a stockholder may vote by proxy, as prescribed by
law. Such proxy shall be filed with the Secretary of the Corporation
before or at the time of the meeting. No proxy shall be valid after 6
months from the date of its creation, unless it is coupled with an interest, or
unless the stockholder specifies in it the length of time for which it is to
continue in force, which may not exceed 7 years from the date of its
creation. If the Corporation’s common stock is listed on a national
stock exchange or Nasdaq and the Corporation is subject to the corporate
governance requirements of such market, the Corporation shall solicit proxies
and provide proxy statements for all meetings of stockholders.
2.10
Voting of
Shares
. Each outstanding share, regardless of class, shall be
entitled to one vote, and each fractional share shall be entitled to a
corresponding fractional vote on each matter submitted to a vote at a meeting of
stockholders, except as may be otherwise provided in the Articles of
Incorporation or in the resolution providing for the issuance of the stock
adopted by the Board of Directors pursuant to authority expressly vested in it
by the provisions of the Articles of Incorporation. If the Articles
of Incorporation or any such resolution provide for more or less than one vote
per share for any class or series of shares on any matter, every reference in
the Articles of Incorporation, these Bylaws and the NRS to a majority or other
proportion or number of shares shall be deemed to refer to a majority or other
proportion of the voting power of all of the shares or those classes or series
of shares, as may be required by the Articles of Incorporation, or in the
resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the Articles of
Incorporation, or the NRS. Cumulative voting shall not be
allowed.
Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In determining the number of votes cast for or against a
proposal, shares abstaining from voting on a matter
(including
elections) will not be treated as a vote for or against the
proposal. A non-vote by a broker will be treated as if the broker
never voted, but a non-vote by a stockholder will be counted as a vote “for” the
management’s position.
2.11
Action Taken Without a
Meeting
. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, any action required or permitted to be taken at a
meeting of the stockholders may be taken without a meeting if a written consent
thereto is signed by stockholders holding at least a majority of the voting
power, except that if a different proportion of voting power is required for
such an action at a meeting, then that proportion of written consents is
required. In no instance where action is authorized by written
consent need a meeting of stockholders be called or notice
given. The written consent must be filed with the minutes of the
proceedings of the stockholders.
2.12
Meetings by
Telephone
. Unless otherwise restricted by the Articles of
Incorporation or these Bylaws, stockholders may participate in a meeting of
stockholders by means of a telephone conference or similar method of
communication by which all persons participating in the meeting can hear each
other. Participation in a meeting pursuant to this Section
constitutes presence in person at the meeting.
2.13
Voting by Class or
Series
. Unless otherwise provided in the NRS, the Articles of
Incorporation or these Bylaws, if voting by a class or series of stockholders is
permitted or required, a majority of the voting power of the class or series
that is present in person or by proxy, regardless of whether the proxy has
authority to vote on all matters, constitutes a quorum for the transaction of
business. Action by the stockholders of each class or series is
approved if a majority of the voting power of a quorum of the class or series
votes for the action.
2.14
Stockholder
Proposals
. At an annual meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been properly brought before the annual meeting of stockholders (a)
by, or at the direction of, the Board of Directors or (b) by a stockholder of
the Corporation who complies with the procedures set forth in this Section
2.14. For business or a proposal to be properly brought before an
annual meeting of stockholders by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder’s notice must be received by
the Secretary at the principal executive offices of the Corporation not earlier
than 120 days nor later than 90 days prior to the first anniversary of the
preceding year’s annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be
received by the Secretary not earlier than the 120th day prior to such annual
meeting and not later than the 90th day prior to such annual meeting, or if
later, the 10th day following the day on which public announcement of the date
of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder’s notice as described above.
A
stockholder’s notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before an annual meeting of stockholders (i) a
description, in 500 words or less, of the business desired to be brought before
the annual meeting and the reasons for conducting such
business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation’s books, of the stockholders known by such stockholder to be
supporting such proposal, (iii) the class and number of shares of the
Corporation which are beneficially owned by such stockholder on the date of such
stockholder’s notice and by any other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder’s notice, (iv) a
description, in 500 words or less, of any interest of the stockholder in such
proposal, and (v) a representation that the stockholder is a holder of record of
stock of the Corporation and intends to appear in person or by proxy at the
meeting to present the proposal specified in the
notice. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at a meeting of stockholders except in accordance
with the procedures set forth in this Section 2.14.
2.15
Conduct of
Meeting.
The Board of Directors may adopt by resolution such
rules and regulations for the conduct of the meeting of stockholders as it shall
deem appropriate. Except to the extent inconsistent with such rules
and regulations as adopted by the Board of Directors, the chairman of any
meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by
the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (a) the establishment of
an agenda or order of business for the meeting; (b) rules and procedures for
maintaining order at the meeting and the safety of those present; (c)
limitations on attendance at or participation in the meeting to only
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(d) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (e) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the
Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
ARTICLE
III
Directors
3.1
Board of Directors; Number;
Qualifications; Election
.
The Corporation shall be
managed by a Board of Directors, all of whom must be natural persons at least 18
years of age. Directors need not be residents of the State of Nevada
or stockholders of the Corporation. The number of directors of the
Corporation shall be not less than one nor more than twelve. Subject
to such limitations, the number of directors may be increased or decreased
by resolution of the Board of Directors, but no decrease shall have the effect
of shortening the term of any incumbent director. Each director shall
hold office until the next annual meeting of stockholders or until his successor
has been elected and qualified.
3.2
Powers of the Board of Directors:
Generally
. Subject only to such limitations as may be provided
by the NRS or the Articles of Incorporation, the Board of Directors shall have
full control over the affairs of the Corporation.
3.3
Resignation
. Any
director of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the President, any vice president, or
the Secretary of the Corporation. Such resignation shall take effect
at the date of receipt of such notice or at any later time specified therein
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective.
3.4
Removal
. Except as
otherwise provided in the Articles of Incorporation, any director may be
removed, either with or without cause, at any time by the vote of the
stockholders representing not less than two-thirds of the voting power of the
issued and outstanding stock entitled to voting power.
3.5
Vacancies
. All
vacancies, including those caused by an increase in the number of directors, may
be filled by a majority of the remaining directors, though less than a quorum,
unless it is otherwise provided in the Articles of Incorporation. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. A director elected to fill a vacancy
caused by an increase in the number of directors shall hold office until the
next annual meeting of stockholders and until his successor has been elected and
has qualified.
3.6
Nominations of
Directors
. Subject to the rights, if any, of the holders of
any series of preferred stock then outstanding, only persons nominated in
accordance with the procedures set forth in this Section 3.6 shall be eligible
for election as directors. Nominations of persons for election to the
Board of Directors may be made at an annual meeting of stockholders or special
meeting of stockholders called by the Board of Directors for the purpose of
electing directors (a) by or at the direction of the Board of Directors or (b)
by any stockholder of the Corporation entitled to vote for the election of
directors at such meeting who complies with the notice procedure set forth in
this Section 3.6. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a
stockholder’s notice must be received by the Secretary at the principal
executive offices of the Corporation not earlier than 120 days nor later than 90
days prior to the first anniversary of the preceding year’s annual meeting;
provided, however, that in the event that the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date, notice by
the stockholder to be timely must be received by the Secretary not earlier than
the 120th day prior to such annual meeting and not later than the 90th day prior
to such annual meeting, or if later, the 10th day following the day on which
public announcement of the date of such meeting is first made. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder’s notice as described
above.
A stockholder’s notice to the Secretary
shall set forth (i) as to each person whom the stockholder proposes to nominate
for election or reelection as a director (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the Corporation which are
beneficially owned by such person on the date of such stockholder’s notice and
(D) any other information relating to such person
that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor statute thereto
(the “Exchange Act”) (including without limitation such person’s written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation’s (or its agent’s) books, of such
stockholder and any other stockholders known by such stockholder to be
supporting such nominee(s), (B) the class and number of shares of the
Corporation which are beneficially owned by such stockholder on the date of such
stockholder’s notice, and (C) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; and (iii) a description of all arrangements or
understandings between the stockholder and each nominee and other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.6. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by this Section and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
3.7
Regular Meetings
. A
regular meeting of the Board of Directors shall be held without other notice
than this Bylaw immediately after and at the same place as the annual meeting of
stockholders. The Board of Directors may provide by resolution the
time and place, either within or outside the State of Nevada, for the holding of
additional regular meetings without other notice than such
resolution.
3.8
Special
Meetings.
Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board or President and shall
be called by the Secretary on the written request of three
directors. The person or persons authorized to call special meetings
of the Board of Directors may fix any place, either within or outside Nevada, as
the place for holding any special meeting of the Board of Directors called by
them.
3.9
Notice
. Notice of
any special meeting shall be given at least two days previously thereto by
written notice delivered personally or mailed to each director at his business
address. Notice may also be given by facsimile machine when directed
to a number at which the director has consent to receive notice, or by
electronic mail, when directed to an electronic mail address at which the
director has consent to receive notice. Any director may waive notice
of any meeting. A director’s presence at a meeting shall constitute a
waiver of notice of such meeting if the director’s oral consent is entered on
the minutes or by taking part in the deliberations at such meeting without
objecting. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
3.10
Quorum
. A majority
of the number of directors elected and qualified at the time of the meeting
shall constitute a quorum for the transaction of business at any such meeting of
the Board of Directors, but if less than such majority is present at a meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice.
3.11
Manner of
Acting
. If a quorum is present, the affirmative vote of a
majority of the directors present at the meeting and entitled to vote on that
particular matter shall be the act of the Board of Directors, unless the vote of
a greater number is required by law or the Articles of
Incorporation.
3.12
Compensation
. By
resolution of the Board of Directors, any director may be paid any one or more
of the following: his expenses, if any, of attendance at meetings; a
fixed sum for attendance at such meeting; or a stated salary as
director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation
therefor.
3.13
Action Taken Without a
Meeting.
Unless otherwise provided in the Articles of
Incorporation or these Bylaws, any action required or permitted to be taken
at a meeting of the Board of Directors or a committee thereof may be taken
without a meeting if, before or after the action, a written consent thereto is
signed by all the members of the Board or of the committee. The
written consent must be filed with the minutes of the proceedings of the Board
or committee.
3.14
Meetings by
Telephone
. Unless otherwise restricted by the Articles of
Incorporation or these Bylaws, members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board or
committee by means of a telephone conference or similar method of communication
by which all persons participating in the meeting can hear each
other. Participation in a meeting pursuant to this Section
constitutes presence in person at the meeting.
3.15
Interested
Directors
. No contract or transaction between the Corporation
and one or more of its directors or officers, or between the Corporation and any
other corporation, partnership, association or other organization in which one
or more of its directors or officers is a director or officer of this
Corporation, on in which one of the directors or officers of this Corporation
has a financial interest in such contract or transaction, shall be void or
voidable solely for this reason, or solely because (a) the director or officer
is present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, (b) his or their
votes are counted for such purpose, or (c) the director or officer joins in the
signing of a written consent which authorizes or approves the contract or
transaction, if (i) the material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; (ii) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; (iii) the fact of the common
directorship, office or financial interest is not known to the director or
officer at the time the transaction is brought before the Board or committee for
action; or (iv) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board, a committee
thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board or a
committee which authorizes the contract or transaction.
ARTICLE
IV
Committees
of the Board Of Directors
4.1
Committees
. The
Board of Directors may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each committee to consist of
at least one director, which, to the extent provided in the resolution or
resolutions or in these Bylaws, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Unless the Articles of Incorporation or these Bylaws
provide otherwise, the Board of Directors may appoint natural persons who are
not directors to serve on committees.
4.2
Committee Chairman, Books and
Records
. As determined or delegated by the Board of Directors,
each committee shall elect a chairman to serve for such term as it may
determine, shall fix its own rules of procedure and shall meet at such times and
places and upon such call or notice as shall be provided by such
rules. It shall keep a record of its acts and proceedings, and all
actions of the committee shall be reported to the Board of Directors at the next
meeting of the Board.
4.3
Alternates
. The
Board of Directors may designate one or more directors as alternate members of a
committee to replace any member who is disqualified or absent from a meeting of
the committee. Unless the Board of Directors appoints alternate
members pursuant to this Section 4.3, the member or members of a committee
present at a meeting and not disqualified from voting, whether or not the member
or members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of an absent or
disqualified member of the committee.
4.4
Quorum and Manner of
Acting
. At each meeting of any committee, the presence of a
majority of the members of such committee, whether regular or alternate, shall
be necessary to constitute a quorum for the transaction of business, and if a
quorum is present the concurrence of a majority of those present shall be
necessary for the taking of any action.
ARTICLE
V
Officers
and Agents
5.1
Officers of the
Corporation.
The Corporation shall have a president, a
secretary, and a treasurer, each of whom shall be elected by the Board of
Directors. The Board of Directors may appoint one or more vice
presidents and such other officers, assistant officers, committees, and
agents, including a chairman of the board, assistant secretaries, and assistant
treasurers, as they may consider necessary, who shall be chosen in such manner
and hold their offices for such terms and have such authority and duties as from
time to time may be determined by the Board of Directors. One person
may hold any two or more offices. The officers of the Corporation
shall be natural persons 18 years of age or older. In all cases where
the duties of any officer, agent, or employee are not prescribed by the Bylaws
or by the Board of Directors, such officer, agent, or employee shall
follow
the orders and instructions of (a) the President, and if a chairman of the board
has been elected, then (b) the Chairman of the Board.
5.2
Election and Term of
Office
. The officers of the Corporation shall be elected by
the Board of Directors annually at the first meeting of the Board held after
each annual meeting of the stockholders. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until
the first of the following occurs: until his successor shall have
been duly elected and shall have qualified; or until his death; or until he
shall resign; or until he shall have been removed in the manner hereinafter
provided.
5.3
Removal
. Any
officer or agent may be removed by the Board of Directors or by the executive
committee, if any, whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract
rights.
5.4
Vacancies
. A
vacancy in any office, however occurring, may be filled by the Board of
Directors for the unexpired portion of the term.
5.5
President
. The
President shall, subject to the direction and supervision of the Board of
Directors, be the chief executive officer of the Corporation and shall have
general and active control of its affairs and business and general supervision
of its officers, agents, and employees. The President shall, unless
otherwise directed by the Board of Directors, attend in person or by substitute
appointed by him, or shall execute, on behalf of the Corporation, written
instruments appointing a proxy or proxies to represent the Corporation, at all
meetings of the stockholders of any other corporation in which the Corporation
shall hold any stock. The President may, on behalf of the
Corporation, in person or by substitute or by proxy, execute written waivers of
notice and consents with respect to any such meetings. At all such
meetings and otherwise, the President, in person or by substitute or proxy as
aforesaid, may vote the stock so held by the Corporation and may execute written
consents and other instruments with respect to such stock and may exercise any
and all rights and powers incident to the ownership of said stock, subject
however to the instructions, if any, of the Board of
Directors. The President shall have custody of the Treasurer’s bond,
if any. If a chairman of the board has been elected, the Chairman of
the Board shall have, subject to the direction and modification of the Board of
Directors, all the same responsibilities, rights, and obligations as
described in these Bylaws for the President.
5.6
Vice
Presidents
. The Vice Presidents, if any, shall assist the
President and shall perform such duties as may be assigned to them by the
President or by the Board of Directors. In the absence of the
President, the Vice President designated by the Board of Directors or (if there
be no such designation) the Vice President designated in writing by the
President shall have the powers and perform the duties of the
President. If no such designation shall be made, all vice presidents
may exercise such powers and perform such duties.
5.7
Secretary
. The
Secretary shall perform the following: (a) keep the minutes of the
proceedings of the stockholders, executive committee, and the Board of
Directors; (b) see that all
notices
are duly given in accordance with the provisions of these Bylaws or as required
by law; (c) be custodian of the corporate records and of the seal of the
Corporation and affix the seal to all documents when authorized by the Board of
Directors; (d) keep, at the Corporation’s registered office or principal place
of business within or outside Nevada, a record containing the names and
addresses of all stockholders and the number and class of shares held by each,
unless such a record shall be kept at the office of the Corporation’s transfer
agent or registrar; (e) sign with the President or a vice president,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the Corporation, unless the Corporation has a
transfer agent; and (g) in general, perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned by the
President or by the Board of Directors. Assistant secretaries, if
any, shall have the same duties and powers, subject to supervision by the
Secretary.
5.8
Treasurer
. The
Treasurer shall be the chief financial officer of the Corporation and shall have
the care and custody of all funds, securities, evidences of indebtedness, and
other personal property of the Corporation, and shall deposit the same in
accordance with the instructions of the Board of Directors. The
Treasurer shall receive and give receipts and acquittances for monies paid in or
on account of the Corporation, and shall pay out of the funds on hand all bills,
payrolls, and other just debts of the Corporation of whatever nature upon
maturity. The Treasurer shall perform all other duties incident to
the office of the treasurer and, upon request of the Board, shall make such
reports to it as may be required at any time. The Treasurer shall, if
required by the Board, give the Corporation a bond in such sums and with such
sureties as shall be satisfactory to the Board, conditioned upon the faithful
performance of his duties and for the restoration to the Corporation of all
books, papers, vouchers, money, and other property of whatever kind in his
possession or under his control belonging to the Corporation. The
Treasurer shall have such other powers and perform such other duties as may be
from time to time prescribed by the Board of Directors or the
President. The assistant treasurers, if any, shall have the same
powers and duties, subject to the supervision of the Treasurer.
The
Treasurer shall also be the principal accounting officer of the
Corporation. The Treasurer shall prescribe and maintain the methods
and systems of accounting to be followed, keep complete books and records of
account, prepare and file all local, state, and federal tax returns, prescribe
and maintain an adequate system of internal audit, and prepare and furnish to
the President and the Board of Directors statements of account showing the
financial position of the Corporation and the results of its
operations.
5.9
Salaries
. Officers
of the Corporation shall be entitled to such salaries, emoluments, compensation,
or reimbursement as shall be fixed or allowed from time to time by the Board of
Directors.
5.10
Bonds
. If the Board
of Directors by resolution shall so require, any officer or agent of the
Corporation shall give bond to the Corporation in such amount and with such
surety as the Board of Directors may deem sufficient, conditioned upon the
faithful performance of that officer’s or agent’s duties and
offices.
ARTICLE
VI
Stock
6.1
Stock Certificates and
Transfers
. (a) The interest of each stockholder of
the Corporation shall be evidenced by certificates representing shares of stock
in such form as the appropriate officers of the Corporation may from time to
time prescribe; provided that the Board of Directors may provide by resolution
or resolutions that all or some of all classes or series of the stock of the
Corporation shall be represented by uncertificated shares. Every
holder of stock represented by certificates shall be entitled to have a
certificate signed by, or in the name of the Corporation by the Chairman of the
Board and Chief Executive Officer, or the President or any other authorized
officer and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation representing the number of shares
registered in certificate form.
(b) The
shares of the stock of the Corporation represented by certificates shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney, upon surrender for cancellation of certificates representing
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably
require. Upon receipt of proper transfer instructions from the
registered owner of uncertificated shares such uncertificated shares shall be
canceled and issuance of new equivalent uncertificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation. Within a reasonable time after the issuance or
transfer of uncertificated stock, the Corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to Chapter 78 of the NRS or, unless
otherwise provided by Chapter 78 of the NRS, a statement that the Corporation
will furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
6.2
Lost, Stolen or Destroyed
Certificates
. No certificate for shares or uncertificated
shares of stock in the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen, except on production of such
evidence of such loss, destruction or theft and on delivery to the Corporation
of a bond of indemnity in such amount, upon such terms and secured by such
surety, as the Board of Directors or its designee may in its or his discretion
require.
6.3
Transfer Agents, Registrars, and
Paying Agents
. The Board of Directors may at its discretion
appoint one or more transfer agents, registrars, and agents for making payment
upon any class of stock, bond, debenture, or other security of the
Corporation. Such agents and registrars may be located either within
or outside Nevada. They shall have such rights and duties and shall
be entitled to such compensation as may be agreed.
ARTICLE
VII
Indemnification
of Officers and Directors
7.1
Indemnification; Advancement of
Expenses.
To the fullest extent permitted by the laws of the
State of Nevada (currently set forth in NRS 78.7502), as the same now exists or
may hereafter be amended or supplemented, the Corporation shall indemnify its
directors and officers, including payment of expenses as they are incurred and
in advance of the final disposition of any action, suit, or
proceeding. Employees, agents, and other persons may be similarly
indemnified by the Corporation, including advancement of expenses, in such case
or cases and to the extent set forth in a resolution or resolutions adopted by
the Board of Directors. No amendment of this Section shall have any
effect on indemnification or advancement of expenses relating to
any event arising prior to the date of such amendment.
7.2
Insurance and Other Financial
Arrangements Against Liability of Directors, Officers, Employees, and
Agents.
To the fullest extent permitted by the laws of the
State of Nevada (currently set forth in NRS 78.752), as the same now exists or
may hereafter be amended or supplemented, the Corporation may purchase and
maintain insurance and make other financial arrangements on behalf of any person
who is or was a director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, for any liability asserted against such person and liability
and expense incurred by such person in its capacity as a director, officer,
employee, or agent, or arising out of such person’s status as such, whether or
not the Corporation has the authority to indemnify such person against such
liability and expenses.
ARTICLE
VIII
Applicability
of Certain Statutes
8.1
Acquisition of Controlling
Interest.
The provisions of the NRS pertaining to the
acquisition of a controlling interest (currently set forth in NRS 78.378 to
78.3793, inclusive), as the same now exists or may hereafter be amended or
supplemented, shall not apply to the Corporation.
8.2
Combinations with Interested
Stockholders
. The provisions of the NRS pertaining to
combinations with interested stockholders (currently set forth in NRS 78.411 to
78.444, inclusive), as the same now exists or may hereafter be amended or
supplemented, shall not apply to the Corporation.
ARTICLE
IX
Execution
of Instruments; Loans, Checks and Endorsements;
Deposits;
Proxies
9.1
Execution of
Instruments
. The President or any vice president shall have
the power to execute and deliver on behalf of and in the name of the Corporation
any instrument requiring the signature of an officer of the Corporation, except
as otherwise provided in these Bylaws or where the execution and delivery
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. Unless authorized to do so by
these Bylaws or by the Board of
Directors,
no officer, agent, or employee shall have any power or authority to bind the
Corporation in any way, to pledge its credit, or to render it liable pecuniarily
for any purpose or in any amount.
9.2
Loans
. The
Corporation may lend money to, guarantee the obligations of, and otherwise
assist directors, officers, and employees of the Corporation, or directors of
another corporation of which the Corporation owns a majority of the voting
stock, only upon compliance with the requirements of the NRS.
No loans
shall be contracted on behalf of the Corporation and no evidence of indebtedness
shall be issued in its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
9.3
Checks and
Endorsements
. All checks, drafts, or other orders for the
payment of money, obligations, notes, or other evidences of indebtedness, bills
of lading, warehouse receipts, trade acceptances, and other such instruments
shall be signed or endorsed by such officers or agents of the Corporation as
shall from time to time be determined by resolution of the Board of Directors,
which resolution may provide for the use of facsimile signatures.
9.4
Deposits
. All funds
of the Corporation not otherwise employed shall be deposited from time to time
to the Corporation’s credit in such banks or other depositories as shall from
time to time be determined by resolution of the Board of Directors, which
resolution may specify the officers or agents of the Corporation who shall have
the power, and the manner in which such power shall be exercised, to make such
deposits and to endorse, assign, and deliver for collection and deposit checks,
drafts, and other orders for the payment of money payable to the Corporation or
its order.
9.5
Proxies
. Unless
otherwise provided by resolution adopted by the Board of Directors, the
President or any vice president may from time to time appoint one or more agents
or attorneys-in-fact of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to
cast as the holder of stock or other securities in any other corporation,
association, or other entity any of whose stock or other securities may be held
by the Corporation, at meetings of the holders of the stock or other securities
of such other corporation, association, or other entity or to consent in
writing, in the name of the Corporation as such holder, to any action by such
other corporation, association, or other entity, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
9.6
Contracts
. The
Board of Directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances.
10.1
Waivers of
Notice
. Whenever notice is required by the NRS, by the
Articles of Incorporation, or by these Bylaws, a waiver thereof in writing
signed by the director, stockholder, or other person entitled to said notice,
whether before, at, or after the time stated therein, or his appearance at such
meeting in person or (in the case of a stockholders’ meeting) by proxy,
shall be equivalent to such notice.
10.2
Corporate Seal
. The
Board of Directors may adopt a seal circular in form and bearing the name of the
Corporation, the state of its incorporation, and the word “Seal” which, when
adopted, shall constitute the seal of the Corporation. The seal may
be used by causing it or a facsimile of it to be impressed, affixed, manually
reproduced, or rubber-stamped with indelible ink.
10.3
Fiscal Year
. The
Board of Directors may, by resolution, adopt a fiscal year for the
Corporation.
10.4
Amendment of
Bylaws
. The provisions of these Bylaws may at any time, and
from time to time, be amended, supplemented or repealed by the Board of
Directors.
10.5
Uniformity of Interpretation and
Severability
. These Bylaws shall be so interpreted and
construed as to conform to the Articles of Incorporation and the laws of the
State of Nevada or of any other state in which conformity may become necessary
by reason of the qualification of the Corporation to do business in such state,
and where conflict between these Bylaws, the Articles of Incorporation or
the laws of such a state has arisen or shall arise, these Bylaws shall be
considered to be modified to the extent, but only to the extent, conformity
shall require. If any provision hereof or the application thereof
shall be deemed to be invalid by reason of the foregoing sentence, such
invalidity shall not affect the validity of the remainder of these Bylaws
without the invalid provision or the application thereof, and the
provisions of these Bylaws are declared to be severable.
10.6
Emergency
Bylaws
. Subject to repeal or change by action of the
stockholders, the Board of Directors may adopt emergency bylaws in accordance
with and pursuant to the provisions of the laws of the State of
Nevada.
SECRETARY’S
CERTIFICATION
The
undersigned Secretary of Energy Composites Corporation (the “Corporation”)
hereby certifies that the foregoing Amended and Restated Bylaws are the Bylaws
of the Corporation adopted by the Board of Directors as of the 14th day of
October, 2008.
By
/s/ Kenneth
Iwinski
Kenneth Iwinski, Corporate
Secretary
15
EXHIBIT 10.1
2008 STOCK INCENTIVE PLAN
2008
Stock Incentive Plan
1. Establishment,
Purpose, and Types of Awards
Energy Composites Corporation (the
“Company”) hereby establishes this equity-based incentive compensation plan to
be known as the “2008 Stock Incentive Plan” (hereinafter referred to as the
“Plan”), in order to provide incentives and awards to select employees,
directors, consultants, and advisors of the Company and its
Affiliates.
The Plan permits the granting of the
following types of awards (“Awards”), according to the Sections of the Plan
listed here:
Section
6
|
Options
|
Section
7
|
Share
Appreciation Rights
|
Section
8
|
Restricted
Shares, Restricted Share Units, and Unrestricted Shares
|
Section
9
|
Deferred
Share Units
|
Section
10
|
Performance
Awards
|
The Plan is not intended to affect and
shall not affect any stock options, equity-based compensation, or other benefits
that the Company or its Affiliates may have provided, or may separately provide
in the future pursuant to any agreement, plan, or program, that is independent
of this Plan.
2. Defined
Terms
Terms in the Plan that begin with an
initial capital letter have the defined meaning set forth herein unless defined
elsewhere in this Plan or the context of their use clearly indicates a different
meaning.
“Affiliate”
means, with respect to any Person (as defined below), any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, “control,” when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms “affiliated,”
“controlling” and “controlled” have meanings correlative to the
foregoing.
“Applicable
Law”
means the legal requirements relating to the administration of
options and share-based plans under applicable U.S. federal and state laws, the
Code, any applicable stock exchange or automated quotation system rules or
regulations, and the applicable laws of any other country or jurisdiction where
Awards are granted, as such laws, rules, regulations and requirements shall be
in place from time to time.
“Award”
means any award made pursuant to the Plan, including awards made in the form of
an Option, an SAR, a Restricted Share, a Restricted Share Unit, an Unrestricted
Share, a Deferred Share Unit, and a Performance Award, or any combination
thereof, whether alternative or cumulative, authorized by and granted under this
Plan.
“Award
Agreement”
means any written document setting forth the terms of an Award
that has been authorized by the Committee. The Committee shall
determine the form or forms of documents to be used, and may change them from
time to time for any reason.
“Board”
means the Board of Directors of the Company.
“Cause”
for termination of a Participant’s Continuous Service will exist if the
Participant is terminated from employment or other service with the Company or
an Affiliate for any of the following reasons: (i) the Participant’s willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant’s commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant’s material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant’s
willful
and material breach of any of his or her obligations under any written agreement
or covenant with the Company.
The Committee shall in its discretion
determine whether or not a Participant is being terminated for
Cause. The Committee’s determination shall, unless arbitrary and
capricious, be final and binding on the Participant, the Company, and all other
affected persons. The foregoing definition does not in any way limit
the Company’s ability to terminate a Participant’s employment or consulting
relationship at any time, and the term “Company” will be interpreted herein to
include any Affiliate or successor thereto, if appropriate.
“Change in
Control”
means any of the following:
(i)
Acquisition of Controlling
Interest.
Any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing
50%
or more of the combined
voting power of the Company’s then outstanding securities. In
applying the preceding sentence, (i) securities acquired directly from the
Company or its Affiliates by or for the Person shall not be taken into account,
and (ii) an agreement to vote securities shall be disregarded unless its
ultimate purpose is to cause what would otherwise be a Change in Control, as
reasonably determined by the Board.
(ii)
Change in Board
Control.
During a consecutive 2-year period commencing after
the date of adoption of this Plan, individuals who constituted the Board at the
beginning of the period (or their approved replacements, as defined in the next
sentence) cease for any reason to constitute a majority of the
Board. A new Director shall be considered an “approved replacement”
Director if his or her election (or nomination for election) was approved by a
vote of at least a majority of the Directors then still in office who either
were Directors at the beginning of the period or were themselves approved
replacement Directors, but in either case excluding any Director whose initial
assumption of office occurred as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board.
(iii)
Merger.
The
Company consummates a merger, or consolidation of the Company with any other
corporation unless: (a) the voting securities of the Company outstanding
immediately before the merger or consolidation would continue to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least
50%
of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; and (b) no Person
becomes the Beneficial Owner, directly or indirectly, of securities of the
Company representing
50%
or more of the combined
voting power of the Company’s then outstanding securities.
(iv)
Sale of
Assets.
The stockholders of the Company approve an agreement
for the sale or disposition by the Company of all, or substantially all, of the
Company’s assets.
(v)
Liquidation or
Dissolution.
The stockholders of the Company approve a plan or
proposal for liquidation or dissolution of the Company.
Notwithstanding the foregoing, a
“Change in Control” shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated transactions immediately
following which the record holders of the common stock of the Company
immediately prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately following such
transaction or series of transactions.
“Code”
means the U.S. Internal Revenue Code of 1986, as amended.
“Committee”
means one or more committees or subcommittees of the Board appointed by the
Board to administer the Plan in accordance with Section 4 above. With
respect to any decision involving an Award intended to satisfy the requirements
of Section 162(m) of the Code, the Committee shall consist of two or more
Directors of the Company who are “outside directors” within the meaning of
Section 162(m) of the Code. With respect to any decision relating to
a Reporting Person, the Committee shall consist of two or more Directors who are
disinterested within the meaning of Rule 16b-3.
“Company”
means Energy Composites Corp., a Nevada corporation; provided, however, that in
the event the Company reincorporates to another jurisdiction, all references to
the term “Company” shall refer to the Company in such new
jurisdiction.
“Consultant”
means any person, including an advisor, who is engaged by the Company or any
Affiliate to render services and is compensated for such services.
“Continuous
Service”
means the absence of any interruption or termination of service
as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or between the
Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not
constitute an interruption of Continuous Service.
“Deferred Share
Units”
mean Awards pursuant to Section 9 of the Plan.
“Director”
means a member of the Board, or a member of the board of directors of an
Affiliate.
“Disabled”
means a condition under which a Participant is —
(i) unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, or
(ii) by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, received income replacement benefits for a period of not less
than 3 months under an accident or health plan covering employees of the
Company.
“Eligible
Person”
means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.
“Employee”
means any person whom the Company or any Affiliate classifies as an employee
(including an officer) for employment tax purposes, whether or not that
classification is correct. The payment by the Company of a director’s
fee to a Director shall not be sufficient to constitute “employment” of such
Director by the Company.
“Exchange
Act”
means the Securities Exchange Act of 1934, as amended.
“Fair Market
Value”
means, as of any date (the “Determination Date”) means: (i) the
closing price of a Share on the New York Stock Exchange or the American Stock
Exchange (collectively, the “Exchange”), on the Determination Date, or, if
shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the
last sales price (if the stock is then listed as a National Market Issue under
The Nasdaq National Market System) or (B) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the
Board.
“Grant
Date”
has the meaning set forth in Section 14 of the Plan.
“Incentive Share
Option or ISO”
hereinafter means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Award Agreement.
“Involuntary
Termination”
means termination of a Participant’s Continuous Service
under the following circumstances occurring on or after a Change in Control: (i)
termination without Cause by the Company or an Affiliate or successor thereto,
as appropriate; or (ii) voluntary termination by the Participant within 60 days
following (A) a material reduction in the Participant’s job responsibilities,
provided that neither a mere change in title alone nor reassignment to a
substantially similar position shall constitute a material reduction in job
responsibilities; (B) an involuntary relocation of the Participant’s work site
to a facility or location more than 50 miles from the Participant’s principal
work site at the time of the Change in Control; or (C) a material reduction in
Participant’s total compensation other than as part of an reduction by the same
percentage amount in the compensation of all other similarly-situated Employees,
Directors or Consultants.
“Non-ISO”
means an Option not intended to qualify as an ISO, as designated in the
applicable Award Agreement.
“Option”
means any stock option granted pursuant to Section 6 of the Plan.
“Participant”
means any holder of one or more Awards, or the Shares issuable or issued upon
exercise of such Awards, under the Plan.
“Performance
Awards”
mean Performance Units and Performance Compensation Awards
granted pursuant to Section 10.
“Performance
Compensation Awards”
mean Awards granted pursuant to Section 10(b) of the
Plan.
“Performance
Unit”
means Awards granted pursuant to Section 10(a) of the Plan which
may be paid in cash, in Shares, or such combination of cash and Shares as the
Committee in its sole discretion shall determine.
“Person”
means any natural person, association, trust, business trust, cooperative,
corporation, general partnership, joint venture, joint-stock company, limited
partnership, limited liability company, real estate investment trust, regulatory
body, governmental agency or instrumentality, unincorporated organization or
organizational entity.
“Plan”
means this Energy Composites Corp. 2008 Stock Incentive Plan.
“Reporting
Person”
means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.
“Restricted
Shares”
mean Shares subject to restrictions imposed pursuant to Section 8
of the Plan.
“Restricted Share
Units”
mean Awards pursuant to Section 8 of the Plan.
“Rule
16b-3”
means Rule 16b-3 promulgated under the Exchange Act, as amended
from time to time, or any successor provision.
“SAR” or “Share
Appreciation Right”
means Awards granted pursuant to Section 7 of the
Plan.
“Share”
means a share of common stock of the Company, par value $0.001, as adjusted in
accordance with Section 13 of the Plan.
“Ten Percent
Holder”
means a person who owns stock representing more than ten percent
(10%) of the combined voting power of all classes of stock of the Company or any
Affiliate.
“Unrestricted
Shares”
mean Shares awarded pursuant to Section 8 of the
Plan.
3. Shares
Subject to the Plan
Subject to the provisions of Section 13
of the Plan, the maximum number of Shares that the Company may issue for all
Awards is equal to 10% of the issued and outstanding common stock of the
Company, outstanding as of the end of the Company’s most recently completed
fiscal year. For all Awards, the Shares issued pursuant to the Plan
may be authorized but unissued Shares, or Shares that the Company has reacquired
or otherwise holds in treasury.
Shares that are subject to an Award
that for any reason expires, is forfeited, is cancelled, or becomes
unexercisable, and Shares that are for any other reason not paid or delivered
under the Plan shall again, except to the extent prohibited by Applicable Law,
be available for subsequent Awards under the Plan. In addition, the
Committee may make future Awards with respect to Shares that the Company retains
from otherwise delivering pursuant to an Award either (i) as payment of the
exercise price of an Award, or (ii) in order to satisfy the withholding or
employment taxes due upon the grant, exercise, vesting or distribution of an
Award. Notwithstanding the foregoing, but subject to adjustments
pursuant to Section 13 below, the number of Shares that are available for ISO
Awards shall be determined, to the extent required under applicable tax laws, by
reducing the number of Shares designated in the preceding paragraph by the
number of Shares granted pursuant to Awards (whether or not Shares are issued
pursuant to such Awards), provided that any Shares that are either issued or
purchased under the Plan and forfeited back to the Plan, or surrendered in
payment of the Exercise Price for an Award shall be available for issuance
pursuant to future ISO Awards.
4. Administration
(a)
General.
The
Committee shall administer the Plan in accordance with its terms, provided that
the Board may act in lieu of the Committee on any matter. The
Committee shall hold meetings at such times and places as it may determine and
shall make such rules and regulations for the conduct of its business as it
deems advisable. In the absence of a duly appointed Committee or if
the Board otherwise chooses to act in lieu of the Committee, the Board shall
function as the Committee for all purposes of the Plan.
(b)
Committee
Composition.
The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the
Committee may authorize one or more Reporting Persons (or other officers) to
make Awards to Eligible Persons who are not Reporting Persons (or other officers
whom the Committee has specifically authorized to make Awards). The
Board may at any time appoint additional members to the Committee, remove and
replace members of the Committee with or without Cause, and fill vacancies on
the Committee however caused.
(c)
Powers of the
Committee.
Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:
(i) to determine Eligible
Persons to whom Awards shall be granted from time to time and the number of
Shares, units, or SARs to be covered by each Award;
(ii) to determine, from time
to time, the Fair Market Value of Shares;
(iii) to determine, and to
set forth in Award Agreements, the terms and conditions of all Awards, including
any applicable exercise or purchase price, the installments and conditions under
which an Award shall become vested (which may be based on performance),
terminated, expired, cancelled, or replaced, and the circumstances for vesting
acceleration or waiver of forfeiture restrictions, and other restrictions and
limitations;
(iv) to approve the forms of
Award Agreements and all other documents, notices and certificates in connection
therewith which need not be identical either as to type of Award or among
Participants;
(v) to construe and
interpret the terms of the Plan and any Award Agreement, to determine the
meaning of their terms, and to prescribe, amend, and rescind rules and
procedures relating to the Plan and its administration;
(vi) in order to fulfill the
purposes of the Plan and without amending the Plan, modify, cancel, or waive the
Company’s rights with respect to any Awards, to adjust or to modify Award
Agreements for changes in Applicable Law, and to recognize differences in
foreign law, tax policies, or customs; and
(vii) to make all other
interpretations and to take all other actions that the Committee may consider
necessary or advisable to administer the Plan or to effectuate its
purposes.
Subject to Applicable Law and the
restrictions set forth in the Plan, the Committee may delegate administrative
functions to individuals who are Reporting Persons, officers, or Employees of
the Company or its Affiliates.
(d)
Deference to Committee
Determinations.
The Committee shall have the discretion to
interpret or construe ambiguous, unclear, or implied (but omitted) terms in any
fashion it deems to be appropriate in its sole discretion, and to make any
findings of fact needed in the administration of the Plan or Award
Agreements. The Committee’s prior exercise of its discretionary
authority shall not obligate it to exercise its authority in a like fashion
thereafter. The Committee’s interpretation and construction of any
provision of the Plan, or of any Award or Award Agreement, shall be final,
binding, and conclusive. The validity of any such interpretation,
construction, decision or finding of fact shall not be given de novo review if
challenged in court, by arbitration, or in any other forum, and shall be upheld
unless clearly made in bad faith or materially affected by fraud.
(e)
No Liability;
Indemnification.
Neither the Board nor any Committee member,
nor any Person acting at the direction of the Board or the Committee, shall be
liable for any act, omission, interpretation, construction or determination made
in good faith with respect to the Plan, any Award or any Award
Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney’s fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates
may obtain liability insurance for this purpose.
5. Eligibility
(a)
General Rule.
The
Committee may grant ISOs only to Employees (including officers who are
Employees) of the Company or an Affiliate that is a “parent corporation” or
“subsidiary corporation” within the meaning of Section 424 of the Code, and may
grant all other Awards to any Eligible Person. A Participant who has
been granted an Award may be granted an additional Award or Awards if the
Committee shall so determine, if such person is otherwise an Eligible Person and
if otherwise in accordance with the terms of the Plan.
(b)
Grant of
Awards.
Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an
Award Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms
and conditions of the Award established by the Committee, and each Award shall
be subject to the terms and conditions set forth in Sections 23, 24, and 25
unless otherwise specifically provided in an Award Agreement.
(c)
Limits on
Awards.
During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The
Committee will adjust this limitation pursuant to Section 13 below.
(d)
Replacement
Awards.
Subject to Applicable Laws (including any associated
Shareholder approval requirements), the Committee may, in its sole discretion
and upon such terms as it deems appropriate, require as a condition of the grant
of an Award to a Participant that the Participant surrender for cancellation
some or all of the Awards that have previously been granted to the Participant
under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to
the terms
or conditions of such surrendered Award, and may contain any other terms that
the Committee deems appropriate. In the case of Options, these other
terms may not involve an Exercise Price that is lower than the Exercise Price of
the surrendered Option unless the Company’s shareholders approve the grant
itself or the program under which the grant is made pursuant to the
Plan.
(a)
Types;
Documentation.
The Committee may in its discretion grant ISOs
to any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the
Participant. Each Option shall be designated in the Award Agreement
as an ISO or a Non-ISO, and the same Award Agreement may grant both types of
Options. At the sole discretion of the Committee, any Option may be
exercisable, in whole or in part, immediately upon the grant thereof, or only
after the occurrence of a specified event, or only in installments, which
installments may vary. Options granted under the Plan may contain
such terms and provisions not inconsistent with the Plan that the Committee
shall deem advisable in its sole and absolute discretion.
(b)
ISO $100,000
Limitation.
To the extent that the aggregate Fair Market Value
of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the
$100,000 limit is exceeded, the Fair Market Value of the Shares subject to an
ISO shall be determined as of the Grant Date. In reducing the number
of Options treated as ISOs to meet the $100,000 limit, the most recently granted
Options shall be reduced first. In the event that Section 422 of the
Code is amended to alter the limitation set forth therein, the limitation of
this Section 6(b) shall be automatically adjusted accordingly.
(c)
Term of
Options.
Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of
an ISO granted to an Employee who is a Ten Percent Holder on the Grant Date, the
term of the ISO shall not exceed five years from the Grant Date.
(d)
Exercise
Price.
The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the
Company nor the Committee shall, without shareholder approval, allow for a
repricing within the meaning of the federal securities laws applicable to proxy
statement disclosures.
(e)
Exercise of
Option.
The times, circumstances and conditions under which an
Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall
have the discretion to determine whether and to what extent the vesting of
Options shall be tolled during any unpaid leave of absence; provided, however,
that in the absence of such determination, vesting of Options shall be tolled
during any such leave approved by the Company.
(f)
Minimum Exercise
Requirements.
An Option may not be exercised for a fraction of
a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.
(g)
Methods of
Exercise.
Prior to its expiration pursuant to the terms of the
applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the secretary of the Company accompanied by the full exercise price of the
Shares being purchased. In the case of an ISO, the Committee shall
determine the acceptable methods of payment on the Grant Date and it shall be
included in the applicable Award Agreement. The
methods
of payment that the Committee may in its discretion accept or commit to accept
in an Award Agreement include:
(i) cash or check payable to
the Company (in U.S. dollars);
(ii) other Shares that (A)
are owned by the Participant who is purchasing Shares pursuant to an Option, (B)
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is being exercised, (C) were
not acquired by such Participant pursuant to the exercise of an Option, unless
such Shares have been owned by such Participant for at least six months or such
other period as the Committee may determine, (D) are all, at the time of such
surrender, free and clear of any and all claims, pledges, liens and
encumbrances, or any restrictions which would in any manner restrict the
transfer of such shares to or by the Company (other than such restrictions as
may have existed prior to an issuance of such Shares by the Company to such
Participant), and (E) are duly endorsed for transfer to the
Company;
(iii) a cashless exercise
program that the Committee may approve, from time to time in its discretion,
pursuant to which a Participant may concurrently provide irrevocable
instructions (A) to such Participant’s broker or dealer to effect the immediate
sale of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the exercise price
of the Option plus all applicable taxes required to be withheld by the Company
by reason of such exercise, and (B) to the Company to deliver the certificates
for the purchased Shares directly to such broker or dealer in order to complete
the sale; or
(iv) any combination of the
foregoing methods of payment.
The Company shall not be required to
deliver Shares pursuant to the exercise of an Option until payment of the full
exercise price therefore is received by the Company.
(h)
Termination of Continuous
Service.
The Committee may establish and set forth in the
applicable Award Agreement the terms and conditions on which an Option shall
remain exercisable, if at all, following termination of a Participant’s
Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not
entitled to exercise an Option at the date of his or her termination of
Continuous Service, or if the Participant (or other person entitled to exercise
the Option) does not exercise the Option to the extent so entitled within the
time specified in the Award Agreement or below (as applicable), the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan and become available for future Awards. In no
event may any Option be exercised after the expiration of the Option term as set
forth in the Award Agreement.
The following provisions shall apply to
the extent an Award Agreement does not specify the terms and conditions upon
which an Option shall terminate when there is a termination of a Participant’s
Continuous Service:
(i)
Termination other than Upon
Disability or Death or for Cause.
In the event of termination
of a Participant’s Continuous Service (other than as a result of Participant’s
death, disability, retirement or termination for Cause), the Participant shall
have the right to exercise an Option at any time within 90 days following such
termination to the extent the Participant was entitled to exercise such Option
at the date of such termination.
(ii)
Disability.
In the
event of termination of a Participant’s Continuous Service as a result of his or
her being Disabled, the Participant shall have the right to exercise an Option
at any time within one year following such termination to the extent the
Participant was entitled to exercise such Option at the date of such
termination.
(iii)
Retirement.
In the
event of termination of a Participant’s Continuous Service as a result of
Participant’s retirement, the Participant shall have the right to exercise the
Option at any time within six months following such termination to the extent
the Participant was entitled to exercise such Option at the date of such
termination.
(iv)
Death.
In the
event of the death of a Participant during the period of Continuous Service
since the Grant Date of an Option, or within thirty days following termination
of the Participant’s Continuous Service, the Option may be exercised, at any
time within one year following the date of the Participant’s death, by the
Participant’s estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the right to exercise
the Option had vested at the date of death or, if earlier, the date the
Participant’s Continuous Service terminated.
(v)
Cause.
If the
Committee determines that a Participant’s Continuous Service terminated due to
Cause, the Participant shall immediately forfeit the right to exercise any
Option, and it shall be considered immediately null and void.
(i)
Reverse
Vesting.
The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.
(j)
Buyout
Provisions.
The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.
7. Share
Appreciate Rights (SARs)
(a)
Grants.
The
Committee may in its discretion grant Share Appreciation Rights to any Eligible
Person, in any of the following forms:
(i)
SARs related to
Options.
The Committee may grant SARs either concurrently with
the grant of an Option or with respect to an outstanding Option, in which case
the SAR shall extend to all or a portion of the Shares covered by the related
Option. An SAR shall entitle the Participant who holds the related
Option, upon exercise of the SAR and surrender of the related Option, or portion
thereof, to the extent the SAR and related Option each were previously
unexercised, to receive payment of an amount determined pursuant to Section 7(e)
below. Any SAR granted in connection with an ISO will contain such
terms as may be required to comply with the provisions of Section 422 of the
Code and the regulations promulgated thereunder.
(ii)
SARs Independent of
Options.
The Committee may grant SARs which are independent of
any Option subject to such conditions as the Committee may in its discretion
determine, which conditions will be set forth in the applicable Award
Agreement.
(iii)
Limited SARs.
The
Committee may grant SARs exercisable only upon or in respect of a Change in
Control or any other specified event, and such limited SARs may relate to or
operate in tandem or combination with or substitution for Options or other SARs,
or on a stand-alone basis, and may be payable in cash or Shares based on the
spread between the exercise price of the SAR, and (A) a price based upon or
equal to the Fair Market Value of the Shares during a specified period, at a
specified time within a specified period before, after or including the date of
such event, or (B) a price related to consideration payable to Company’s
shareholders generally in connection with the event.
(c)
Exercise of
SARs.
Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related
Option. An SAR may not have a term exceeding ten years from its Grant
Date. An SAR granted independently of
any other
Award will be exercisable pursuant to the terms of the Award Agreement, but
shall not, without the approval of the shareholders of the Company, provide for
a vesting period for the exercise of the SAR that is more favorable to the
Participant than the exercise period for the related Option. Whether
an SAR is related to an Option or is granted independently, the SAR may only be
exercised when the Fair Market Value of the Shares underlying the SAR exceeds
the exercise price of the SAR.
(d)
Effect on Available
Shares.
All SARs that may be settled in shares of the
Company’s stock shall be counted in full against the number of shares available
for award under the Plan, regardless of the number of shares actually issued
upon settlement of the SARs.
(e)
Payment.
Upon
exercise of an SAR related to an Option and the attendant surrender of an
exercisable portion of any related Award, the Participant will be entitled to
receive payment of an amount determined by multiplying —
(i) the excess of the Fair
Market Value of a Share on the date of exercise of the SAR over the exercise
price per Share of the SAR, by
(ii) the number of Shares
with respect to which the SAR has been exercised.
Notwithstanding the foregoing, an SAR
granted independently of an Option (i) may limit the amount payable to the
Participant to a percentage, specified in the Award Agreement but not exceeding
one-hundred percent (100%), of the amount determined pursuant to the preceding
sentence, and (ii) shall be subject to any payment or other restrictions that
the Committee may at any time impose in its discretion, including restrictions
intended to conform the SARs with Section 409A of the Code.
(f)
Form and Terms of
Payment.
Subject to Applicable Law, the Committee may, in its
sole discretion, settle the amount determined under Section 7(e) above solely in
cash, solely in Shares (valued at their Fair Market Value on the date of
exercise of the SAR), or partly in cash and partly in Shares, with cash paid in
lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.
(g)
Termination of Employment or
Consulting Relationship.
The Committee shall establish and set
forth in the applicable Award Agreement the terms and conditions on which an SAR
shall remain exercisable, if at all, following termination of a Participant’s
Continuous Service. The provisions of Section 6(h) above shall apply
to the extent an Award Agreement does not specify the terms and conditions upon
which an SAR shall terminate when there is a termination of a Participant’s
Continuous Service.
(h)
Buy out.
The
Committee has the same discretion to buy out SARs as it has to take such actions
pursuant to Section 6(j) above with respect to Options.
8. Restricted
Shares, Restricted Share Units, and Unrestricted Shares
or more
Eligible Persons (selected by the Committee in its sole discretion) elect to
receive Unrestricted Shares in lieu of cash bonuses that would otherwise be
paid.
(b)
Vesting and
Forfeiture.
The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant’s interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award
Agreement or the Committee otherwise determines, upon termination of a
Participant’s Continuous Service for any other reason, the Participant shall
forfeit his or her Restricted Shares and Restricted Share Units; provided that
if a Participant purchases the Restricted Shares and forfeits them for any
reason, the Company shall return the purchase price to the Participant only if
and to the extent set forth in an Award Agreement.
(c)
Issuance of Restricted Shares Prior
to Vesting.
The Company shall issue stock certificates that
evidence Restricted Shares pending the lapse of applicable restrictions, and
that bear a legend making appropriate reference to such
restrictions. Except as set forth in the applicable Award Agreement
or the Committee otherwise determines, the Company or a third party that the
Company designates shall hold such Restricted Shares and any dividends that
accrue with respect to Restricted Shares pursuant to Section 8(e)
below.
(d)
Issuance of Shares upon
Vesting.
As soon as practicable after vesting of a
Participant’s Restricted Shares (or Shares underlying Restricted Share Units)
and the Participant’s satisfaction of applicable tax withholding requirements,
the Company shall release to the Participant, free from the vesting
restrictions, one Share for each vested Restricted Share (or issue one Share
free of the vesting restriction for each vested Restricted Share Unit), unless
an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.
(e)
Dividends Payable on
Vesting.
Whenever Shares are released to a Participant or
duly-authorized transferee pursuant to Section 8(d) above as a result of the
vesting of Restricted Shares or the Shares underlying Restricted Share Units are
issued to a Participant pursuant to Section 8(d) above, such Participant or
duly-authorized transferee shall also be entitled to receive (unless otherwise
provided in the Award Agreement), with respect to each Share released or issued,
an amount equal to any cash dividends (plus, in the sole discretion of the
Committee, simple interest at a rate as the Committee may determine) and a
number of Shares equal to any stock dividends, which were declared and paid to
the holders of Shares between the Grant Date and the date such Share is released
from the vesting restrictions in the case of Restricted Shares or issued in the
case of Restricted Share Units.
(f)
Section 83(b)
Elections.
A Participant may make an election under Section
83(b) of the Code (the “Section 83(b) Election”) with respect to Restricted
Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant’s
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant’s Restricted Share Unit Award. The
Participant may then make a Section 83(b) Election with respect to those
Restricted Shares. Shares with respect to which a Participant makes a
Section 83(b) Election shall not be eligible for deferral pursuant to Section 9
below.
(g)
Deferral
Elections.
At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such
Award. If the Participant makes this election, the Shares subject to
the election, and any associated dividends and interest, shall be credited to an
account established pursuant to Section 9 hereof on the date such Shares would
otherwise have been released or issued to the Participant pursuant to Section
8(d) above.
9. Deferred
Share Units
(a)
Elections to
Defer.
The Committee may permit any Eligible Person who is a
Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to
irrevocably
elect, on a form provided by and acceptable to the Committee (the “Election
Form”), to forego the receipt of cash or other compensation (including the
Shares deliverable pursuant to any Award other than Restricted Shares for which
a Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the “Account”) a number of deferred share
units (“Deferred Share Units”) having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the
end of each calendar month during which compensation is
deferred. Each Election Form shall take effect on the first day of
the next calendar year (or on the first day of the next calendar month in the
case of an initial election by a Participant who first becomes eligible to defer
hereunder) after its delivery to the Company, subject to Section 8(g) regarding
deferral of Restricted Shares and Restricted Share Units and to Section 10(e)
regarding deferral of Performance Awards, unless the Company sends the
Participant a written notice explaining why the Election Form is invalid within
five business days after the Company receives it. Notwithstanding the
foregoing sentence: (i) Election Forms shall be ineffective with respect to any
compensation that a Participant earns before the date on which the Company
receives the Election Form, and (ii) the Committee may unilaterally make awards
in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.
(b)
Vesting.
Unless an
Award Agreement expressly provides otherwise, each Participant shall be 100%
vested at all times in any Shares subject to Deferred Share Units.
(c)
Issuances of
Shares.
The Company shall provide a Participant with one Share
for each Deferred Share Unit in five substantially equal annual installments
that are issued before the last day of each of the five calendar years that end
after the date on which the Participant’s Continuous Service terminates, unless
—
(i) the Participant has
properly elected a different form of distribution, on a form approved by the
Committee, that permits the Participant to select any combination of a lump sum
and annual installments that are completed within ten years following
termination of the Participant’s Continuous Service, and
(ii) the Company received
the Participant’s distribution election form at the time the Participant elects
to defer the receipt of cash or other compensation pursuant to Section 9(a),
provided that such election may be changed through any subsequent election that
(i) is delivered to the Company at least one year before the date on which
distributions are otherwise scheduled to commence pursuant to the Participant’s
election, and (ii) defers the commencement of distributions by at least five
years from the originally scheduled commencement date.
Fractional
shares shall not be issued, and instead shall be paid out in cash.
(d)
Crediting of
Dividends.
Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.
(e)
Emergency
Withdrawals.
In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant’s Deferred Share
Units. The unforeseeable emergency must result from a sudden and
unexpected illness or accident of the Participant, the Participant’s spouse, or
a dependent (within the meaning of Section 152(a) of the Code) of the
Participant, casualty loss of the Participant’s property, or other similar
extraordinary and unforeseeable conditions beyond the control of the
Participant. Examples of purposes which are not considered
unforeseeable emergencies include post-secondary school expenses or the desire
to purchase a residence. In no event will a distribution be made to
the extent the unforeseeable emergency could be relieved through reimbursement
or compensation by insurance or otherwise, or by liquidation of the
Participant’s nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any
distribution hereunder shall be limited to the amount necessary to relieve the
Participant’s unforeseeable emergency plus amounts necessary to pay taxes
reasonably anticipated as a result of the distribution. The Committee
shall determine whether a Participant has a qualifying unforeseeable emergency
and the amount which qualifies for distribution, if any. The
Committee may require evidence of the purpose and amount of the need, and may
establish such application or other procedures as it deems
appropriate.
(f)
Unsecured Rights to Deferred
Compensation.
A Participant’s right to Deferred Share Units
shall at all times constitute an unsecured promise of the Company to pay
benefits as they come due. The right of the Participant or the
Participant’s duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the
Company. Neither the Participant nor the Participant’s
duly-authorized transferee shall have any claim against or rights in any
specific assets, shares, or other funds of the Company.
10. Performance
Awards
(a)
Performance
Units.
Subject to the limitations set forth in paragraph (c)
hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.
(b)
Performance Compensation
Awards.
Subject to the limitations set forth in paragraph (c)
hereof, the Committee may, at the time of grant of a Performance Unit, designate
such Award as a “Performance Compensation Award” (payable in cash or Shares) in
order that such Award constitutes “qualified performance-based compensation”
under Code Section 162(m), in which event the Committee shall have the power to
grant such Performance Compensation Award upon terms and conditions that qualify
it as “qualified performance-based compensation” within the meaning of Code
Section 162(m). With respect to each such Performance Compensation
Award, the Committee shall establish, in writing within the time required under
Code Section 162(m), a “Performance Period,” “Performance Measure(s)”, and
“Performance Formula(e)” (each such term being hereinafter
defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).
A Participant shall be eligible to
receive payment in respect of a Performance Compensation Award only to the
extent that the Performance Measure(s) for such Award is achieved and the
Performance Formula(e) as applied against such Performance Measure(s) determines
that all or some portion of such Participant’s Award has been earned for the
Performance Period. As soon as practicable after the close of each
Performance Period, the Committee shall review and certify in writing whether,
and to what extent, the Performance Measure(s) for the Performance Period have
been achieved and, if so, determine and certify in writing the amount of the
Performance Compensation Award to be paid to the Participant and, in so doing,
may use negative discretion to decrease, but not increase, the amount of the
Award otherwise payable to the Participant based upon such
performance.
(c)
Limitations on
Awards.
The maximum Performance Unit Award and the maximum
Performance Compensation Award that any one Participant may receive for any one
Performance Period shall not together exceed 1,000,000 Shares and $1,000,000 in
cash. The Committee shall have the discretion to provide in any Award
Agreement that any amounts earned in excess of these limitations will either be
credited as Deferred Share Units, or as deferred cash compensation under a
separate plan of the Company (provided in the latter case that such deferred
compensation either bears a reasonable rate of interest or has a value based on
one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.
(d)
Definitions.
(i) ”Performance Formula”
means, for a Performance Period, one or more objective formulas or standards
established by the Committee for purposes of determining whether or the extent
to which an Award has been earned based on the level of performance attained or
to be attained with respect to one or more Performance
Measure(s). Performance Formulae may vary from Performance Period to
Performance Period and from Participant to Participant and may be established on
a stand-alone basis, in tandem or in the alternative.
(ii) ”Performance Measure”
means one or more of the following selected by the Committee to measure Company,
Affiliate, and/or business unit performance for a Performance Period, whether
in
absolute
or relative terms (including, without limitation, terms relative to a peer group
or index): basic, diluted, or adjusted earnings per share; sales or revenue;
earnings before interest, taxes, and other adjustments (in total or on a per
share basis); basic or adjusted net income; returns on equity, assets, capital,
revenue or similar measure; economic value added; working capital; total
shareholder return; and product development, product market share, research,
licensing, litigation, human resources, information services, mergers,
acquisitions, sales of assets of Affiliates or business units. Each
such measure shall be, to the extent applicable, determined in accordance with
generally accepted accounting principles as consistently applied by the Company
(or such other standard applied by the Committee) and, if so determined by the
Committee, and in the case of a Performance Compensation Award, to the extent
permitted under Code Section 162(m), adjusted to omit the effects of
extraordinary items, gain or loss on the disposal of a business segment, unusual
or infrequently occurring events and transactions and cumulative effects of
changes in accounting principles. Performance Measures may vary from
Performance Period to Performance Period and from Participant to Participant,
and may be established on a stand-alone basis, in tandem or in the
alternative.
(iii) “Performance Period”
means one or more periods of time (of not less than one fiscal year of the
Company), as the Committee may designate, over which the attainment of one or
more Performance Measure(s) will be measured for the purpose of determining a
Participant’s rights in respect of an Award.
(e)
Deferral
Elections.
At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the
cash or Shares subject to the election, and any associated interest and
dividends, shall be credited to an account established pursuant to Section 9
hereof on the date such cash or Shares would otherwise have been released or
issued to the Participant pursuant to Section 10(a) or Section 10(b)
above.
11. Taxes
(a)
General.
As a
condition to the issuance or distribution of Shares pursuant to the Plan, the
Participant (or in the case of the Participant’s death, the person who succeeds
to the Participant’s rights) shall make such arrangements as the Company may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the Award and the
issuance of Shares. The Company shall not be required to issue any
Shares until such obligations are satisfied. If the Committee allows
the withholding or surrender of Shares to satisfy a Participant’s tax
withholding obligations, the Committee shall not allow Shares to be withheld in
an amount that exceeds the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes.
(b)
Default Rule for
Employees.
In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.
(c)
Special Rules.
In
the case of a Participant other than an Employee (or in the case of an Employee
where the next payroll payment is not sufficient to satisfy such tax
obligations, with respect to any remaining tax obligations), in the absence of
any other arrangement and to the extent permitted under Applicable Law, the
Participant shall be deemed to have elected to have the Company withhold from
the Shares or cash to be issued pursuant to an Award that number of Shares
having a Fair Market Value determined as of the applicable Tax Date (as defined
below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the “Tax Date”).
(d)
Surrender of
Shares.
If permitted by the Committee, in its discretion, a
Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering
Shares to
the Company (including Shares that would otherwise be issued pursuant to the
Award) that have a Fair Market Value determined as of the applicable Tax Date
equal to the amount required to be withheld. In the case of Shares
previously acquired from the Company that are surrendered under this Section 11,
such Shares must have been owned by the Participant for more than six months on
the date of surrender (or such longer period of time the Company may in its
discretion require).
(e)
Income Taxes and Deferred
Compensation.
Participants are solely responsible and liable
for the satisfaction of all taxes and penalties that may arise in connection
with Awards (including any taxes arising under Section 409A of the Code), and
the Company shall not have any obligation to indemnify or otherwise hold any
Participant harmless from any or all of such taxes. The Committee
shall have the discretion to organize any deferral program, to require deferral
election forms, and to grant or to unilaterally modify any Award in a manner
that (i) conforms with the requirements of Section 409A of the Code with respect
to compensation that is deferred and that vests after December 31, 2004, (ii)
that voids any Participant election to the extent it would violate Section 409A
of the Code, and (iii) for any distribution election that would violate Section
409A of the Code, to make distributions pursuant to the Award at the earliest to
occur of a distribution event that is allowable under Section 409A of the Code
or any distribution event that is both allowable under Section 409A of the Code
and is elected by the Participant, subject to any valid second election to
defer, provided that the Committee permits second elections to defer in
accordance with Section 409A(a)(4)(C). The Committee shall have the
sole discretion to interpret the requirements of the Code, including Section
409A, for purposes of the Plan and all Awards.
12. Non-Transferability
of Awards
(a)
General.
Except as
set forth in this Section 12, or as otherwise approved by the Committee, Awards
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or
distribution. The designation of a beneficiary by a Participant will
not constitute a transfer. An Award may be exercised, during the
lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.
(b)
Limited Transferability
Rights.
Notwithstanding anything else in this Section 12, the
Committee may in its discretion provide in an Award Agreement that an Award
other than an ISO may be transferred, on such terms and conditions as the
Committee deems appropriate, either (i) by instrument to the Participant’s
“Immediate Family” (as defined below), (ii) by instrument to
an inter vivos
or
testamentary trust (or other entity) in which the Award is to be passed to the
Participant’s designated beneficiaries, or (iii) by gift to charitable
institutions. Any transferee of the Participant’s rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. “Immediate Family” means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.
13. Adjustments
Upon Changes in Capitalization, Merger or Certain Other
Transactions
(a)
Changes in
Capitalization.
The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding Options under the Plan such alternative consideration (including
securities of any surviving entity) as it may in good faith determine to be
equitable under the circumstances and may require in connection therewith the
surrender of all Options so replaced. In any case, such substitution
of securities shall not require the consent of any person who is granted Options
pursuant to the Plan. Except as expressly provided herein, or in an
Award Agreement, if the Company issues for consideration shares of stock of any
class or securities
convertible into shares of stock
of any class, the issuance shall not affect, and no adjustment by reason thereof
shall be required to be made with respect to the number or price of Shares
subject to any Award.
(b)
Dissolution or
Liquidation.
In the event of the dissolution or liquidation of
the Company other than as part of a Change of Control, each Award will terminate
immediately prior to the consummation of such action, subject to the ability of
the Committee to exercise any discretion authorized in the case of a Change in
Control.
(c)
Change in
Control.
In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company’s shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:
(i) arrange for or otherwise
provide that each outstanding Award shall be assumed or a substantially similar
award shall be substituted by a successor corporation or a parent or subsidiary
of such successor corporation (the “Successor Corporation”);
(ii) accelerate the vesting
of Awards so that Awards shall vest (and, to the extent applicable, become
exercisable) as to the Shares that otherwise would have been unvested and
provide that repurchase rights of the Company with respect to Shares issued upon
exercise of an Award shall lapse as to the Shares subject to such repurchase
right;
(iii) arrange or otherwise
provide for the payment of cash or other consideration to Participants in
exchange for the satisfaction and cancellation of outstanding
Awards;
(iv) terminate upon the
consummation of the transaction, provided that the Committee may in its sole
discretion provide for vesting of all or some outstanding Awards in full as of a
date immediately prior to consummation of the Change of Control. To
the extent that an Award is not exercised prior to consummation of a transaction
in which the Award is not being assumed or substituted, such Award shall
terminate upon such consummation; or
(v) make such other
modifications, adjustments or amendments to outstanding Awards or this Plan as
the Committee deems necessary or appropriate, subject however to the terms of
Section 15(a) below.
Notwithstanding the above, in the event
a Participant holding an Award assumed or substituted by the Successor
Corporation in a Change in Control is Involuntarily Terminated by the Successor
Corporation in connection with, or within 12 months following consummation of,
the Change in Control, then any assumed or substituted Award held by the
terminated Participant at the time of termination shall accelerate and become
fully vested (and exercisable in full in the case of Options and SARs), and any
repurchase right applicable to any Shares shall lapse in full, unless an Award
Agreement provides for a more restrictive acceleration or vesting schedule or
more restrictive limitations on the lapse of repurchase rights or otherwise
places additional restrictions, limitations and conditions on an
Award. The acceleration of vesting and lapse of repurchase rights
provided for in the previous sentence shall occur immediately prior to the
effective date of the Participant’s termination, unless an Award Agreement
provides otherwise.
(d)
Certain
Distributions.
In the event of any distribution to the
Company’s shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.
The date of grant (“Grant Date”) of an
Award shall be the date on which the Committee makes the determination granting
such Award or such other date as is determined by the Committee, provided that
in the case of an ISO, the Grant Date shall be the later of the date on which
the Committee makes the determination granting such ISO or the date of
commencement of the Participant’s employment relationship with the
Company.
15. Modification
of Awards and Substitution of Options
(a)
Modification, Extension, and Renewal
of Awards.
Within the limitations of the Plan, the Committee
may modify an Award to accelerate the rate at which an Option or SAR may be
exercised (including without limitation permitting an Option or SAR to be
exercised in full without regard to the installment or vesting provisions of the
applicable Award Agreement or whether the Option or SAR is at the time
exercisable, to the extent it has not previously been exercised), to accelerate
the vesting of any Award, to extend or renew outstanding Awards or to accept the
cancellation of outstanding Awards to the extent not previously
exercised. However, the Committee may not cancel an outstanding
option that is underwater for the purpose of reissuing the option to the
participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no
modification of an outstanding Award shall materially and adversely affect such
Participant’s rights thereunder, unless either the Participant provides written
consent or there is an express Plan provision permitting the Committee to act
unilaterally to make the modification.
(b)
Substitution of
Options.
Notwithstanding any inconsistent provisions or limits
under the Plan, in the event the Company or an Affiliate acquires (whether by
purchase, merger or otherwise) all or substantially all of outstanding capital
stock or assets of another corporation or in the event of any reorganization or
other transaction qualifying under Section 424 of the Code, the Committee may,
in accordance with the provisions of that Section, substitute Options for
options under the plan of the acquired company provided (i) the excess of the
aggregate fair market value of the shares subject to an option immediately after
the substitution over the aggregate option price of such shares is not more than
the similar excess immediately before such substitution and (ii) the new option
does not give persons additional benefits, including any extension of the
exercise period.
16. Term
of Plan
The Plan shall continue in effect for a
term of ten (10) years from its effective date as determined under Section 20
below, unless the Plan is sooner terminated under Section 17 below.
17. Amendment
and Termination of the Plan
(a)
Authority to Amend or
Terminate.
Subject to Applicable Laws, the Board may from time
to time amend, alter, suspend, discontinue, or terminate the Plan.
(b)
Effect of Amendment or
Termination.
No amendment, suspension, or termination of the
Plan shall materially and adversely affect Awards already granted unless either
it relates to an adjustment pursuant to Section 13 above, or it is otherwise
mutually agreed between the Participant and the Committee, which agreement must
be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the
Plan to eliminate provisions which are no longer necessary as a result of
changes in tax or securities laws or regulations, or in the interpretation
thereof.
Notwithstanding any other provision of
the Plan or any agreement entered into by the Company pursuant to the Plan, the
Company shall not be obligated, and shall have no liability for failure, to
issue or deliver any Shares under the Plan unless such issuance or delivery
would comply with Applicable Law, with such compliance determined by the Company
in consultation with its legal counsel.
19. Reservation
of Shares
The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
20. Effective
Date
This Plan shall become effective on the
date on which it has received approval by a vote of a majority of the votes cast
at a duly held meeting of the Company’s shareholders (or by such other
shareholder vote that the
Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company’s governing documents and applicable state
law).
21. Controlling
Law
All disputes relating to or arising
from the Plan shall be governed by the internal substantive laws (and not the
laws of conflicts of laws) of the State of Delaware, to the extent not preempted
by United States federal law. If any provision of this Plan is held
by a court of competent jurisdiction to be invalid and unenforceable, the
remaining provisions shall continue to be fully effective.
22. Laws
And Regulations
(a)
U.S. Securities
Laws.
This Plan, the grant of Awards, and the exercise of
Options and SARs under this Plan, and the obligation of the Company to sell or
deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event
that the Shares are not registered under the Securities Act of 1933, as amended
(the “Act”), or any applicable state securities laws prior to the delivery of
such Shares, the Company may require, as a condition to the issuance thereof,
that the persons to whom Shares are to be issued represent and warrant in
writing to the Company that such Shares are being acquired by him or her for
investment for his or her own account and not with a view to, for resale in
connection with, or with an intent of participating directly or indirectly in,
any distribution of such Shares within the meaning of the Act, and a legend to
that effect may be placed on the certificates representing the
Shares.
(b)
Other
Jurisdictions.
To facilitate the making of any grant of an
Award under this Plan, the Committee may provide for such special terms for
Awards to Participants who are foreign nationals or who are employed by the
Company or any Affiliate outside of the United States of America as the
Committee may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom. The Company may adopt rules and
procedures relating to the operation and administration of this Plan to
accommodate the specific requirements of local laws and procedures of particular
countries. Without limiting the foregoing, the Company is
specifically authorized to adopt rules and procedures regarding the conversion
of local currency, taxes, withholding procedures and handling of stock
certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow
accounts and trusts as may be appropriate or applicable to particular locations
and countries.
Neither a Participant nor any
transferee of a Participant shall have any rights as a shareholder of the
Company with respect to any Shares underlying any Award until the date of
issuance of a share certificate to a Participant or a transferee of a
Participant for such Shares in accordance with the Company’s governing
instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right
that is determined based on a record date prior to the date the stock
certificate is issued, except as otherwise specifically provided for in this
Plan.
24. No
Employment Rights
The Plan shall not confer upon any
Participant any right to continue an employment, service or consulting
relationship with the Company, nor shall it affect in any way a Participant’s
right or the Company’s right to terminate the Participant’s employment, service,
or consulting relationship at any time, with or without Cause.
25. Termination,
Rescission and Recapture
(a) Each
Award under the Plan is intended to align the Participant’s long-term interest
with those of the Company. If the Participant engages in certain
activities discussed below, either during employment or after employment with
the Company terminates for any reason, the Participant is acting contrary to the
long-term interests
of the
Company. Accordingly, except as otherwise expressly provided in the
Award Agreement, the Company may terminate any outstanding, unexercised,
unexpired, unpaid, or deferred Awards (“Termination”), rescind any exercise,
payment or delivery pursuant to the Award (“Rescission”), or recapture any
Common Stock (whether restricted or unrestricted) or proceeds from the
Participant’s sale of Shares issued pursuant to the Award (“Recapture”), if the
Participant does not comply with the conditions of subsections (b) and (c)
hereof (collectively, the “Conditions”).
(b) A
Participant shall not during his or her Continuous Service or within one year
thereafter, without the Company’s prior written authorization, disclose to
anyone outside the Company, or use in other than the Company’s business, any
proprietary or confidential information or material, as those or other similar
terms are used in any applicable patent, confidentiality, inventions, secrecy,
or other agreement between the Participant and the Company with regard to any
such proprietary or confidential information or
material. Notwithstanding the foregoing provision, to the extent such
proprietary or confidential information or material constitutes a “trade secret”
under applicable law, Participant’s obligations hereunder shall continue until
such information or material is no longer a trade secret.
(c) Pursuant
to any agreement between the Participant and the Company with regard to
intellectual property (including but not limited to patents, trademarks,
copyrights, trade secrets, inventions, developments, improvements, proprietary
information, confidential business and personnel information), a Participant
shall promptly disclose and assign to the Company or its designee all right,
title, and interest in such intellectual property, and shall take all reasonable
steps necessary to enable the Company to secure all right, title and interest in
such intellectual property in the United States and in any foreign
country.
(d) Upon
exercise, payment, or delivery of cash or Common Stock pursuant to an Award, the
Participant shall certify on a form acceptable to the Company that he or she is
in compliance with the terms and conditions of the Plan and, if a severance of
Continuous Service has occurred for any reason, shall state the name and address
of the Participant’s then-current employer or any entity for which the
Participant performs business services and the Participant’s title, and shall
identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.
(e) If
the Company determines, in its sole and absolute discretion, that (i) a
Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has participated in any business or enterprise which is a direct
competitor of the Company or its Affiliates and which is located in the United
States, Canada or Mexico; (b) has solicited any non-administrative employee of
the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant’s
relevant Awards, Shares, and the proceeds thereof. For purposes of
this subsection, “participated” means performed services that are the same or
substantially similar to the services Participant provides or has provided to
the Company or its Affiliates.
(f) Within
ten days after receiving notice from the Company of any such activity, the
Participant shall deliver to the Company the Shares acquired pursuant to the
Award, or, if Participant has sold the Shares, the gain realized, or payment
received as a result of the rescinded exercise, payment, or delivery; provided,
that if the Participant returns Shares that the Participant purchased pursuant
to the exercise of an Option (or the gains realized from the sale of such Common
Stock), the Company shall promptly refund the exercise price, without earnings,
that the Participant paid for the Shares. Any payment by the
Participant to the Company pursuant to this Section 21 shall be made either in
cash or by returning to the Company the number of Shares that the Participant
received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or
Recapture if after termination of a Participant’s Continuous Service, the
Participant purchases, as an investment or otherwise, stock or other securities
of such an organization or business, so long as (i) such stock or other
securities are listed upon a recognized securities exchange or traded
over-the-counter, and (ii) such investment does not represent more than a five
percent (5%) equity interest in the organization or business.
(g) Notwithstanding
the foregoing provisions of this Section, the Company has sole and absolute
discretion not to require Termination, Rescission and/or Recapture, and its
determination not to require Termination,
Rescission
and/or Recapture with respect to any particular act by a particular Participant
or Award shall not in any way reduce or eliminate the Company’s authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed
to impose obligations on the Participant to refrain from engaging in lawful
competition with the Company after the termination of employment that does not
violate subsections (b) or (c) of this Section, other than any obligations that
are part of any separate agreement between the Company and the Participant or
that arise under applicable law.
(h) All
administrative and discretionary authority given to the Company under this
Section shall be exercised by the most senior human resources executive of the
Company or such other person or committee (including without limitation the
Committee) as the Committee may designate from time to time.
(i) Notwithstanding
any provision of this Section, if any provision of this Section is determined to
be unenforceable or invalid under any applicable law, such provision will be
applied to the maximum extent permitted by applicable law, and shall
automatically be deemed amended in a manner consistent with its objectives to
the extent necessary to conform to any limitations required under applicable
law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.
Notwithstanding the foregoing, but
subject to any contrary terms set forth in any Award Agreement, this Section
shall not be applicable: (i) to any Participant who is not, on the Award Date,
an Employee of the Company or its Affiliates; and (ii) to any Participant from
and after his or her termination of Continuous Service after a Change in
Control.
20
EXHIBIT 10.2
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
BOND AGREEMENT DATED FEBRUARY 28, 2007
$4,000,000
City
of Wisconsin Rapids, Wisconsin
Industrial
Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced
Fiberglass Technologies Project)
By and
Among
CITY
OF WISCONSIN RAPIDS, WISCONSIN,
as
Issuer,
M
& W FIBERGLASS, LLC,
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.,
and
JAMIE L.
MANCL and JENNIFER MANCL,
as
Borrowers
NEKOOSA
PORT EDWARDS STATE BANK,
as
Trustee
and
NEKOOSA
PORT EDWARDS STATE BANK,
as
Original Purchaser
Dated
February 28, 2007
$4,000,000
City
of Wisconsin Rapids, Wisconsin
Industrial
Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced
Fiberglass Technologies Project)
TABLE OF
CONTENTS
ARTICLE I
DEFINITIONS
|
|
|
Section 1.01
|
Definitions
|
|
|
Section 1.02
|
Use
of Phrases; Rules of Construction
|
12
|
|
|
ARTICLE II
ISSUANCE AND TERMS OF BONDS
|
13
|
|
Section 2.01
|
Creation
of Bonds for Issuance
|
13
|
|
Section 2.02
|
Maturity;
Repayment of Principal; Interest Payments
|
13
|
|
Section 2.03
|
Interest
on the Bonds.
|
14
|
|
Section 2.04
|
Occurrence
of a Determination of Taxability
|
15
|
|
Section 2.05
|
Mandatory
and Optional Redemption of Bonds
|
16
|
|
Section 2.06
|
Optional
Redemption of Bonds Upon Occurrence of Certain Extraordinary
Events
|
18
|
|
Section 2.07
|
Purchase
and Cancellation of Bonds
|
20
|
|
Section 2.08
|
Notice
and Effect of Redemption
|
20
|
|
Section 2.09
|
Bonds
to be Limited Obligations of the Issuer
|
20
|
|
Section 2.10
|
Source
of Payment
|
21
|
|
Section 2.11
|
Pledged
Revenues
|
21
|
|
Section 2.12
|
Form
of Bonds
|
21
|
|
Section 2.13
|
Execution
of Bonds
|
21
|
|
Section 2.14
|
Authentication
|
22
|
|
Section 2.15
|
Provision
for Registration, Transfer and Exchange of Bonds
|
22
|
|
Section 2.16
|
Persons
Treated as Bondowners
|
23
|
|
Section 2.17
|
Manner
of Payment of Bonds
|
23
|
|
Section 2.18
|
Mutilated,
Lost, Stolen or Destroyed Bonds
|
23
|
|
Section 2.19
|
Trustee
Designated as Bond Registrar
|
23
|
|
Section 2.20
|
Disposition
of Bonds Upon Payment; Safekeeping of Bonds Surrendered for
Exchange
|
23
|
|
Section 2.21
|
Delivery
of Bonds
|
24
|
|
Section 2.22
|
Parity
|
24
|
|
Section 2.23
|
Discharge
|
24
|
|
|
ARTICLE III
FUNDS AND ACCOUNTS
|
26
|
|
Section 3.01
|
Application
of Proceeds of Bonds
|
26
|
|
Section 3.02
|
Project
Fund
|
26
|
|
Section 3.03
|
Bond
Fund
|
27
|
|
Section 3.04
|
Redemption
Fund
|
27
|
|
Section 3.05
|
Insurance
and Condemnation Proceeds Fund
|
28
|
|
Section 3.06
|
Rebate
Credit Account; Arbitrage
|
29
|
|
Section 3.07
|
Trust
Funds Held in Trust
|
30
|
|
Section 3.08
|
Permitted
Investment of Trust Funds
|
30
|
|
|
ARTICLE IV
TERMS OF LOANS
|
30
|
|
Section 4.01
|
Amount
and Source of Loans
|
30
|
|
Section 4.02
|
Withdrawals
from the Project Fund
|
31
|
|
Section 4.03
|
Establishment
of Completion Date
|
32
|
|
Section 4.04
|
Completion
Date
|
32
|
|
Section 4.05
|
Distribution
of Project Fund on Completion Date
|
32
|
|
Section 4.06
|
Repayment
of Loan
|
32
|
|
Section 4.07
|
Additional
Payments
|
32
|
|
Section 4.08
|
Borrowers’
Obligations Unconditional
|
33
|
|
Section 4.09
|
Credit
for Accrued Interest and Investment Earnings on Bond Fund
|
33
|
|
Section 4.10
|
Prepayment
of Loan
|
33
|
|
Section 4.11
|
Other
Security
|
33
|
|
Section 4.12
|
Nature
of Borrowers’ Obligations
|
33
|
|
Section 4.13
|
Fees
and Expenses of Issuer
|
34
|
|
|
ARTICLE V
ISSUER’S REPRESENTATIONS AND COVENANTS
|
34
|
|
Section 5.01
|
Payment
of Principal and Interest
|
34
|
|
Section 5.02
|
Performance
of and Authority for Covenants
|
34
|
|
Section 5.03
|
Right
to Payments; Instruments of Further Assurance
|
34
|
|
Section 5.04
|
Title
to Project
|
34
|
|
Section 5.05
|
Cooperation
of the Issuer and Trustee
|
35
|
|
Section 5.06
|
Performance
by Issuer
|
35
|
|
|
ARTICLE VI
BORROWERS’ REPRESENTATIONS AND COVENANTS
|
35
|
|
Section 6.01
|
Representations
by the Borrowers Individually
|
35
|
|
Section 6.02
|
Representations
by the Borrowers Collectively
|
37
|
|
Section 6.03
|
Completion
of Project by the Borrowers
|
38
|
|
Section 6.04
|
Payment
of Project Costs by the Borrower
|
38
|
|
Section 6.05
|
Sums
for Completion
|
38
|
|
Section 6.06
|
Borrowers
to Repair, Replace, Rebuild or Restore
|
39
|
|
Section 6.07
|
Maintenance
of Property; Insurance
|
40
|
|
Section 6.08
|
Compliance
with Zoning Laws
|
40
|
|
Section 6.09
|
Indemnification
|
40
|
|
Section 6.10
|
Assurance
of Tax-exemption
|
41
|
|
Section 6.11
|
Legal
Existence; Compliance with Laws; Maintenance of Business;
Taxes
|
41
|
|
Section 6.12
|
Financial
Statements
|
41
|
|
Section 6.13
|
Environmental
Compliance
|
42
|
|
Section 6.14
|
Certain
Financial Covenants.
|
43
|
|
Section 6.15
|
Operating
Funds and Accounts.
|
43
|
|
Section 6.16
|
Inspection
of Property and Records
|
43
|
|
Section 6.17
|
Comply
With, Pay and Discharge All Notes, Mortgages, Deeds of Trust and
Leases
|
44
|
|
Section 6.18
|
Appraisals
|
44
|
|
Section 6.19
|
Negative
Covenants
|
44
|
|
Section 6.20
|
Consent
to Participation
|
46
|
|
|
ARTICLE VII
POWERS AND DUTIES OF TRUSTEE
|
46
|
|
Section 7.01
|
Acceptance
of Trusts
|
46
|
|
Section 7.02
|
Specific
Duty of Trustee to File Continuation Statements
|
48
|
|
Section 7.03
|
Notice
to Bondowners if an Event of Default Occurs
|
48
|
|
Section 7.04
|
Intervention
by Trustee
|
48
|
|
Section 7.05
|
Successor
Trustee
|
49
|
|
Section 7.06
|
Resignation
by Trustee
|
49
|
|
Section 7.07
|
Removal
of Trustee
|
49
|
|
Section 7.08
|
Appointment
of Successor Trustee by Bondowners; Temporary Trustee
|
49
|
|
Section 7.09
|
Concerning
Any Successor Trustee
|
50
|
|
Section 7.10
|
Acquisition
of Conflicting Interests by Trustee
|
50
|
|
Section 7.11
|
Requirement
of a Corporate Trustee
|
51
|
|
Section 7.12
|
Trustee’s
Fees
|
51
|
|
|
ARTICLE VIII
BOND DEFAULTS AND REMEDIES
|
51
|
|
Section 8.01
|
Bond
Defaults Defined
|
51
|
|
Section 8.02
|
Acceleration
|
52
|
|
Section 8.03
|
Remedies
|
52
|
|
Section 8.04
|
Right
of Bondowners to Direct Proceedings
|
53
|
|
Section 8.05
|
Waiver
of Certain Rights
|
53
|
|
Section 8.06
|
Application
of Moneys
|
53
|
|
Section 8.07
|
Remedies
Vested in Trustee
|
54
|
|
Section 8.08
|
Rights
and Remedies of Bondowners
|
54
|
|
Section 8.09
|
Termination
of Proceedings
|
55
|
|
Section 8.10
|
Waivers
of Bond Defaults
|
55
|
|
|
ARTICLE IX
LOAN DEFAULTS AND REMEDIES
|
56
|
|
Section 9.01
|
Loan
Defaults Defined
|
56
|
|
Section 9.02
|
Certain
Notices to Borrower
|
56
|
|
Section 9.03
|
Acceleration
Upon Certain Circumstances
|
57
|
|
Section 9.04
|
Remedies
|
57
|
|
Section 9.05
|
Disposition
of Funds
|
57
|
|
Section 9.06
|
Manner
of Exercise
|
57
|
|
Section 9.07
|
Attorneys’
Fees and Expenses
|
57
|
|
Section 9.08
|
Effect
of Waiver
|
58
|
|
Section 9.09
|
Waiver
of Stay or Extension Laws
|
58
|
|
|
ARTICLE X
AMENDMENTS
|
58
|
|
Section 10.01
|
Amendments
Without Bondowners’ Consent
|
58
|
|
Section 10.02
|
Amendments
With Bondowners’ Consent
|
58
|
|
Section 10.03
|
Consent
of Borrower
|
59
|
|
Section 10.04
|
Special
Provisions Regarding Certain Amendments
|
59
|
|
|
ARTICLE XI
ASSIGNMENT
|
59
|
ARTICLE XII
GENERAL
|
60
|
|
Section 12.01
|
Notices
|
60
|
|
Section 12.02
|
Consent
of Bondowners
|
61
|
|
Section 12.03
|
Limitation
of Rights
|
61
|
|
Section 12.04
|
Captions
|
61
|
|
Section 12.05
|
Execution
Counterparts
|
61
|
|
Section 12.06
|
Severability
|
61
|
|
Section 12.07
|
Binding
Effect
|
61
|
|
Section 12.08
|
Governing
Law
|
61
|
|
|
ARTICLE XIII
AGREEMENT TO PURCHASE BONDS AND FUND Borrowers’
REQUISITIONS
|
61
|
|
Section 13.01
|
Pledges.
|
62
|
|
Section 13.02
|
Certain
Related Documents
|
62
|
|
Section 13.03
|
Bond
Documents
|
62
|
|
Section 13.04
|
Closing
Certificate
|
62
|
|
Section 13.05
|
UCC
Searches
|
62
|
|
Section 13.06
|
Insurance
Certificates
|
62
|
|
Section 13.07
|
Title
Insurance
|
62
|
|
Section 13.08
|
Survey
|
62
|
|
Section 13.09
|
Environmental
Reports
|
63
|
|
Section 13.10
|
Counsel
Opinion
|
63
|
|
Section 13.11
|
Real
Estate Appraisals
|
63
|
|
Section 13.12
|
Proceedings
Satisfactory
|
63
|
|
Section
13.13
|
Project
Compliance
|
63
|
|
Section
13.14
|
Supporting
Documents
|
63
|
$4,000,000
City
of Wisconsin Rapids, Wisconsin
Industrial
Development Revenue Bonds, Series 2006
(Advanced
Fiberglass Technologies Project)
THIS BOND AGREEMENT
(“
Bond Agreement
”),
dated February 28, 2007, is by and among:
(i) the
CITY OF WISCONSIN RAPIDS,
WISCONSIN
(the “
Issuer
”);
(ii)
M & W FIBERGLASS, LLC
, a
Wisconsin limited liability company (“
M &
W
”);
(iii)
ADVANCED FIBERGLASS TECHNOLOGIES,
INC.
, a Wisconsin
corporation (“
Advanced
”);
(iv)
JAMIE L. MANCL
, an individual
and
JENNIFER MANCL
, an
individual, as husband and wife (the “
Mancls
” and, together
with M & W and Advanced, sometimes collectively referred to herein
collectively as the “
Borrowers
” and
individually as a “
Borrower
”);
(v)
NEKOOSA PORT EDWARDS STATE
BANK
, a a Wisconsin banking corporation, as original purchaser of the
Bonds issued hereunder (the “
Original
Purchaser
”);
(vi)
NEKOOSA PORT EDWARDS STATE
BANK
, a Wisconsin banking corporation, as trustee (the “
Trustee
”).
The
Issuer desires to issue the Bonds (hereinafter defined) and to lend the proceeds
thereof to the Borrowers, and the Borrowers wish to borrow such proceeds from
the Issuer, for the purpose of financing the Project (hereinafter
defined).
Pursuant
to its authorizing Resolution (hereinafter defined), the Issuer has authorized
the Bonds to be issued in the aggregate principal amount not to exceed
$4,000,000 and has provided that the Bonds will be issued as tax-exempt bonds of
the Issuer.
In
consideration of the premises, the promises of the Issuer and the Borrowers set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and to secure the payment of the
principal of, premium, if any, and interest on all Bonds issued and outstanding
under this Bond Agreement, the parties agree as follows:
ARTICLE
I
DEFINITIONS
Section 1.01
Definitions
. Capitalized
terms herein shall have the respective meanings set forth below:
Advanced
: Advanced
Fiberglass Technologies, Inc., a Wisconsin corporation.
Advanced Organizational
Documents
: The Articles of Incorporation and By-Laws of
Advanced.
Affiliate
: Any
(a) director, officer or employee of the Person, or (b) Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, another Person. A Person shall be deemed to control
another Person if the controlling Person directly or indirectly, either
individually or together with (in the case of an individual) his spouse, lineal
descendants and ascendant and brothers or sisters by blood or adoption or
spouses of such descendants, ascendant, brothers and sisters, owns five percent
or more of any class of voting securities of the controlled Person or possesses,
directly or indirectly, the power to direct, or cause the direction of, the
management or policies of the controlled Person, whether through the ownership
of voting securities, through common directors, trustees or officers, by
contract or otherwise.
Authorized Representative of
the Borrowers
: Unless and until otherwise designated by any
Borrower by written notice to all of the Parties, Jamie L. Mancl, acting in
his capacity as President of Advanced and Manager of M & W and as an
individual, authorized to bind each Borrower and all of the Borrowers to
contracts, to execute and deliver Borrowers’ Requisitions and to give Trust Fund
investment directions hereunder on behalf of the Borrowers.
Bankruptcy
Condition
: The (i) filing of a petition in bankruptcy by or
against any Borrower or the Issuer as debtor under the United States Bankruptcy
Code, 11 U.S.C. § 101 et seq., or (ii) continuance of other judicial
proceedings with respect to any Borrower or the Issuer as debtor under similar
or successor federal or state bankruptcy, reorganization or insolvency
laws.
Bond
Amount
: $4,000,000.
Bond
Counsel
: A law firm whose legal and tax opinion on municipal
bond issues is nationally recognized, initially, Whyte Hirschboeck Dudek
S.C.
Bond
Fund
: The Trust Fund described in
Section 3.03
Bond
Proceeds
: The proceeds of the sale of the Bonds, namely, such
amount not to exceed $4,000,000, as may be advanced hereunder by the Original
Purchaser.
Bond
Register
: The registration books maintained by the Trustee
pursuant to Section 2.15.
Bondowners
: At
the time or times of determination, the Persons who are registered owners of
Bonds as shown in the Bond Register maintained by the Trustee pursuant to
Section 2.15.
Bonds
: The
Issuer’s aggregate $4,000,000 Industrial Development Revenue Bonds, Series
2007A, 2007B and 2007C (Advanced Fiberglass Technologies Project), issued
pursuant to this Bond Agreement.
Bond
Year
: Each year ending on January 31.
Borrower
: Any
of M & W, Advanced or the Mancls, individually.
Borrowers
: All
of M & W, Advanced and the Mancls, collectively.
Whenever in this
Bond Agreement the term Borrowers is used, it shall refer to the action (or
inaction) or the right or obligation of all three of the Borrowers,
collectively, except as the context otherwise clearly
requires.
Borrowers’
Address
: The address which the Borrowers designate for the
delivery of notices hereunder. Until changed by notice from any
Borrower to all Parties, the Borrower’s address shall be:
Prior
to the Completion Date:
Mr.
Jamie L. Mancl
c/o
Advanced Fiberglass Technologies, Inc.
2330
S. 16
th
Street
Wisconsin
Rapids, Wisconsin 54494
Phone: (715)
421-2060
Fax: (715)
421-2048
After
the Completion Date:
Mr.
Jamie L. Mancl
c/o
Advanced Fiberglass Technologies, Inc.
4400
Commerce Drive
Wisconsin
Rapids, Wisconsin 54494
Phone: (715)
421-2060
Fax: (715)
421-2048
|
Borrower's
Certificate
: A certificate signed on behalf of any Borrower by
an Authorized Officer of the Borrowers.
Borrowers’
Requisition
: A withdrawal from the Project Fund pursuant to
Section 4.02, in the form of
Exhibit D
attached
hereto.
Business
Day
: Any day other than a Saturday, Sunday or other day on
which banks are required or authorized to remain closed in the city in which the
Trustee’s Principal Office is located.
Clerk
: The
Clerk of the Issuer.
Code
: The
Internal Revenue Code of 1986, as amended.
Completion
Date
: The completion date of the Project established in
accordance with Section 4.03.
Counsel
: An
attorney acceptable to the Trustee, duly admitted to practice law before the
highest court of any state, who may be an attorney for any Borrower, the
Original Purchaser, the Trustee or the Issuer.
Dated
Date
: February 28, 2007.
Defeasance
Obligations
: Any of the following which are not subject to
prepayment in whole or in part or to redemption by the issuer thereof prior to
maturity:
(a)
Government
Obligations;
(b)
Evidences
of ownership of proportionate interests in future interest and principal
payments on Government Obligations held by a bank or trust company as custodian,
under which the owner of the investment is the real party in interest and has
the right to proceed directly and individually against the obligor on the
Government Obligations, and which underlying Government Obligations are not
available to satisfy any claim of the custodian or any person claiming through
the custodian or to whom the custodian may be obligated; and
(c)
Obligations
described in Section 103(a) of the Code, which obligations have been
assigned the highest rating assigned to legally defeased debt by Standard &
Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc., and
Moody’s Investors Service and provision for the payment of the principal of,
premium, if any, and interest on which shall have been made by the irrevocable
deposit with a bank or trust company acting as a trustee or escrow agent for
holders of such obligations of securities described in clauses (a) or (b),
the maturing principal of and interest on which, when due and payable, will
provide sufficient moneys to pay when due the principal of, premium, if any, and
interest on such obligations, and which securities described in clauses (a)
or (b) are not available to satisfy any other claim, including any claim of the
trustee or escrow agent or of any person claiming through the trustee or escrow
agent or proceedings arising out of such insolvency.
Determination of
Taxability
: The issuance of a statutory notice of deficiency
by the Internal Revenue Service, or a ruling of the National Office or any
District Office of the Internal Revenue Service, or a final decision of a court
of competent jurisdiction, or a regulation or revenue ruling issued by the
Internal Revenue Service, after the period, if any, for contest or appeal by the
taxpayer of such action, ruling or decision has expired without any such contest
or appeal having been properly instituted by the taxpayer, or delivery to the
Issuer by Bond Counsel of an opinion, which holds or declares in effect that the
interest payable on any of the Bonds is includable for federal income tax
purposes in the gross income of the Bondowners of such Bonds (other than a
Bondowner who is a substantial user of the Project or a related person, as such
terms are defined in the Code).
Employee
Plan
: Any savings, profit sharing, or retirement plan or any
deferred compensation contract or other plan maintained for employees of any
Borrower or its Subsidiaries and covered by Title IV of ERISA, including,
without limitation, any “multiemployer plan” as defined in ERISA.
Environmental
Law
: Any local, state or federal law or other statute, law,
ordinance, rule, code, regulation, decree or order governing, regulating or
imposing liability or standards of conduct concerning the use, treatment,
generation, storage, disposal or other handling or release of any Hazardous
Substance.
Environmental
Liability
: All liability arising under, resulting from or
imposed by any Environmental Law.
ERISA
: The
Employee Retirement Income Security Act of 1974, as amended, and any successor
statute, together with the regulations and published interpretations thereunder,
in each case as in effect from time to time.
Event of
Default
: Any of the events described as such in
Section 8.01 (a “
Bond Default
”) or in
Section 9.01 (a “
Loan
Default
”).
Event of
Taxability
: The circumstance of interest paid or payable on
any Bond becoming includable (other than for purposes of a tax on preferences of
the type imposed by Section 56 of the Code or any successor statute thereto
or any similar federal tax on preferences or similar items and other than by
reason having to do with the tax status of, or rules applicable to, the
particular individual Bondowner rather than the status of, or rules applicable
to, all persons generally) for federal income tax purposes in the gross income
of any Bondowner (other than a Bondowner who is a “substantial user” or a
“related person” within the meaning and for the purposes of Section 147(a)
of the Code) as a consequence of any act, omission or event whatsoever;
provided
,
however
, that a change in the
Code enacted after the date of issuance of the Bonds which results in interest
on borrowings by state and local governments generally being included in gross
income shall not be an Event of Taxability.
GAAP
: Those
generally accepted accounting principles and practices which are recognized as
such by the American Institute of Certified Public Accountants acting through
appropriate boards or committees thereof and which are consistently applied for
all periods so as to properly reflect the financial condition, results of
operations and cash flows of a Borrower and its Subsidiaries.
Government
Authority
: Any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled through stock or capital
ownership or otherwise, by any of the foregoing.
Government
Obligations
: Securities which are direct full faith and credit
obligations of the United States or securities as to which the payment of both
principal and interest are unconditionally guaranteed by the United States of
America.
Guarantor
: Fiberglass
Piping and Fitting Company, a Wisconsin corporation.
Hazardous
Substance
: Any pollutant, contaminant, waste or toxic or
hazardous chemicals, wastes or substances, including, without limitation,
asbestos, urea formaldehyde insulation, petroleum, PCB’s, air pollutants, water
pollutants, and other substances defined as hazardous substances or toxic
substances in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. § 9061 et seq., Hazardous
Materials Transportation Act, 49 U.S.C. § 1802, the Resource Conservation
and Recovery Act, 42 U.S.C. § 6901 et seq., the Toxic
Substance
Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq., the Solid Waste
Disposal Act, 42 U.S.C. § 3251 et seq., the Clean Air Act, 42 U.S.C.
§ 1857 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq.,
Chapters 280-299 of the Wisconsin Statutes, or any other statute, rule,
regulation or order of any Government Authority having jurisdiction over the
control of such wastes or substances, including without limitation the United
States Environmental Protection Agency, the United States Nuclear Regulatory
Agency, the State of Wisconsin and the Milwaukee County Department of
Health.
Highest Elected
Official
: The Mayor of the Issuer.
Indebtedness
: All
liabilities or obligations of a Person, whether or not included on the liability
portion of a balance sheet, and shall include, without limitation, all (a)
indebtedness for borrowed money; (b) indebtedness for the deferred purchase
price of property or services for which the Persons is liable, contingently or
otherwise, as obligor, guarantor or otherwise; (c) any commitment by which the
Person assures a creditor against loss, including, without limitation,
contingent reimbursement obligations with respect to letters of credit; (d)
obligations which are evidenced by notes, acceptances or other instruments; (e)
indebtedness guaranteed in any manner by the Person, including without
limitation guaranties in the form of an agreement to repurchase or reimburse;
(f) any unfunded obligation of the Person, to an Employee Plan; (g) all
liabilities secured by any Lien on any Property owned by the Person, even though
it has not assumed or otherwise become liable for the payment thereof; and (h)
other liabilities or obligations of the Person and its Subsidiaries which would,
in accordance with GAAP, be included on the liability portion of a balance
sheet.
Insurance and Condemnation
Proceeds Fund
: The Trust Fund described in
Section 3.05.
Issuer
: City
of Wisconsin Rapids, Wisconsin, its successors and assigns.
Issuer’s
Address
: The address which the Issuer designates for the
delivery of notices hereunder. Until changed by notice from the
Issuer to all Parties, the Issuer’s Address shall be:
City
of Wisconsin Rapids
444
West Grand Avenue
Wisconsin
Rapids, WI 54495
Attn:
City Clerk
Phone: (715)
421-8208
Fax: (715)
421-8280
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Lien
: Any
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), deed of trust, charge, preference, priority, security
interest or other security agreement or preferential arrangement of any kind or
nature whatsoever including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code of the State of Wisconsin or
comparable law of any jurisdiction.
Loan
: The
Loan of the Bond Proceeds by the Issuer to the Borrowers.
Loan
Documents
: The documents relating to the Bonds and the Loan,
including the Resolution, this Bond Agreement, the Security Documents, the
Promissory Note, and other documents executed and delivered at the
Closing.
Loan
Repayments
: The payments required to be made by the Borrowers
pursuant to Section 4.06.
M &
W
: M & W Fiberglass, LLC, a Wisconsin limited liability
company.
M & W Organizational
Documents
: The Articles of Organization and Operating
Agreement of M & W.
Mancls
: Jamie
L. Mancl, an individual, and Jennifer Mancl, an individual, as husband and
wife.
Material Adverse
Effect
: (a) an Event of Default, (b) a material adverse change
in the business, prospects or condition (financial or otherwise) of a Borrower
or any of its respective Subsidiaries or in any Property, (c) the termination of
any material agreement to which a Borrower is a party, (d) any material
impairment of the right to carry on the business as now or proposed to be
conducted by a Borrower, or (e) any material impairment of the ability of a
Borrower to perform its obligations under this Bond Agreement or the Security
Documents.
Net
Proceeds
: The gross proceeds of an insurance claim or
condemnation award with respect to the Project after payment of all expenses
(including attorneys’ fees and any extraordinary fee or expense of the Trustee)
incurred in its collection.
No Arbitrage
Certificate
: That certain No Arbitrage Certificate dated
February 28, 2007made by the Issuer and acknowledged, with respect to accuracy
and reasonableness of certain expectations, facts and estimates contained
therein, by the Borrower.
Obligations
: The
Promissory Note, all mandatory prepayments, all costs and expenses and all other
Indebtedness of the Borrowers to the Original Purchaser, including, without
limitation, all Obligations as defined in the Credit Agreement.
Of Record
: When used
in reference to any Bondowner, the Person whose name appears in the registration
books maintained by the Trustee pursuant to Section 2.15 as the owner of a
Bond.
Opinion of
Counsel
: A written opinion of Counsel or Bond
Counsel.
Original Issue
Date
: February 28, 2007.
Original
Purchaser
: Nekoosa Port Edwards State Bank, a Wisconsin
banking corporation, Nekoosa, Wisconsin.
Original Purchaser’s
Address
: The address which the Original Purchaser designates
for the delivery of notices hereunder. Until changed by notice from
the Original Purchaser to the Borrower, the Issuer and the Trustee, the Original
Purchaser’s Address is:
Nekoosa
Port Edwards State Bank
405
Market Street
P.O.
Box 9
Nekoosa,
WI 54457
Phone: (715)
886-3104
Fax: (715)
886-3310
|
|
Outstanding Bonds
and
Outstanding
(when used with reference to Bonds): All Bonds which have been
authenticated and delivered by the Trustee hereunder, except:
(a) Bonds
or portions thereof cancelled by the Trustee or delivered to the Trustee for
cancellation; and
(b) Bonds
in lieu of which other Bonds have been authenticated and delivered in accordance
with Sections Section 2.13, Section 2.14 and
Section 2.21.
Participant
: Bankers’
Bank, Madison, Wisconsin.
Paying
Agent
: Any bank or banks designated pursuant to this Bond
Agreement as the agent of the Issuer to receive and disburse the principal of
and interest on the Bonds; initially, the Trustee.
Payment
Date
: Monthly on the 28th day of each month, commencing on
March 28, 2007.
Prime Rate
: the Prime
Rate of Interest as published in the “Money Rates” section of the most recent
Midwest Edition of
The Wall
Street Journal
, provided that if at any time the Prime Rate of Interest
is no longer so published in the Midwest Edition of
The Wall Street Journal
published as of the business day immediately preceding any adjustment in the
interest rate on the Bonds to the Prime Rate, then “Prime Rate” shall mean the
interest rate announced as its Prime Rate of Interest by the largest commercial
bank headquartered in the State of Wisconsin on such date.
PBGC
: The
Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title
IV of ERISA.
Person
: An
individual, partnership, corporation, limited liability company, enterprise,
association, business trust, joint stock company, joint venture, trust,
unincorporated organization, governmental authority or any agency or political
subdivision thereof, or other entity of whatever nature.
Pledged
Revenues
: All revenues and income derived by or for the
account of the Issuer from or for the account of the Borrowers pursuant to the
terms hereof, including, without limitation (i) all payments by the Borrowers on
the Loan or pursuant to Section 4.07, (ii) all cash and securities held
from time to time in the Trust Funds (with the exception of the Rebate Credit
Account) and the investment earnings thereon, and (iii) all proceeds of any
casualty insurance or condemnation awards payable with respect to the
Project.
Project
: The
project described in
Exhibit A
attached hereto.
Project
Costs
:
(a) All
legal, abstracting, surveying, financial and accounting and other fees and
expenses, printing and engraving costs and expenses incurred in connection with
the establishment of title, the authorization, sale and issuance of the Bonds
(including any underwriter’s or agent’s fees, commitment or origination fees, or
points in connection with the issuing of the Bonds but, to the extent paid from
Bond proceeds, not to exceed two percent of the face amount of the Bonds), and
the preparation of this Bond Agreement and all other documents, including filing
fees for any financing statements deemed necessary by Counsel;
(b) All
costs of improving the Project Site;
(c) All
costs of acquiring and installing the Project Equipment;
(d) All
architectural, engineering, consulting, legal, supervisory and other services
incurred and to be incurred in the construction, purchase, acquiring,
installing, improving, equipping or furnishing of the Project;
(e) The
contract price of all labor, services, materials, supplies and equipment
furnished under any contract entered into in connection with the construction,
purchase, acquisition, installing, improving, equipping or furnishing of the
Project;
(f) The
cost of all other labor, services, materials, supplies and equipment necessary
to complete the Project;
(g) All
fees and expenses of the Trustee that become due before the Completion
Date;
(h) To
the extent permitted by the Statute and not prohibited by rules or regulations
of the Internal Revenue Service and not otherwise paid from Bond proceeds
deposited in the Bond Fund, all interest accruing up until and not later than
the completion of the Project, on money borrowed by a Borrower for temporary
financing of Project Costs if such money was borrowed by a Borrower for the
specific purpose of temporarily financing Project Costs and was not part of a
general purpose open line of credit, and interest accruing on the Bonds prior
to, and up to completion of the Project;
(i) Without
limitation by the foregoing, all other expenses which under GAAP constitute
necessary capital expenditures for the completion of the construction,
acquisition, purchase, installation, improving, equipping or furnishing of the
Project, not including initial working capital or expendable supplies (all of
which are nevertheless to be supplied by a Borrower or the Borrowers from its
own funds without reimbursement);
(j) All
advances, payments and expenditures made or to be made by the Issuer, the
Trustee or any other person with respect to any of the foregoing expenses;
and
(k) Reimbursement
of the Borrowers for its payment of any of the foregoing incurred after June 20,
2006.
Project
Equipment
: The equipment to be installed by a Borrower at the
Project Site as part of the Project, and listed on
Exhibit A
attached hereto.
Project
Fund
: The Trust Fund described in
Section 3.02.
Project
Site
: The location of the Project and the Project Equipment,
namely, 4400 Commerce Drive, in the City of Wisconsin Rapids, Wood County,
Wisconsin.
Promissory
Note
: The Promissory Notes to the Issuer from the Borrowers,
dated the Original Issue Date, in the original principal amounts of $3,000,000
(the “
Series A
Note
”), $500,000 (the “
Series B Note
”) and
$500,000 (the “
Series
C Note
”).
Property
: Any
interest of the Borrowers or any of their respective Subsidiaries of any kind in
property or assets, whether real, personal, mixed, tangible or intangible,
wherever located, and whether now owned or subsequently acquired or arising and
in the products, proceeds, additions and accessions thereof or
thereto.
Qualified
Investments
: Includes any of the following securities, in and
to the extent that the Trustee has not been notified that the same have not been
disqualified as legal for the investment of the Issuer’s
moneys: Government Obligations and (a) the obligations, including
discount notes, of (i) Federal National Mortgage Association, (ii) Federal
Intermediate Credit Banks, (iii) Federal Banks for Cooperatives, (iv) Federal
Land Banks, (v) Federal Home Loan Banks, (vi) Federal Financing Bank, (vii)
Federal Farm Credit System, (viii) Federal Home Loan Mortgage Corporation,
(ix) Government National Mortgage Association, (x) Federal Housing
Administration, and (xi) Farmers Home Administration;
provided
,
however
, that obligations
listed in this subpart (a) shall be guaranteed by the United States of America;
(b) unsecured certificates of deposit, demand deposits, including interest
bearing money market accounts, trust deposits, time deposits or bankers
acceptances (in each case having maturities of not more than 360 days) of any
domestic bank (including the Original Purchaser and the Trustee and any bank
affiliated with the Trustee) including a branch office of a foreign bank, which
branch office is located in the United States, provided that such bank at the
time of purchase, has a short-term “Bank Deposit” rating of “Prime-1” or better
by Moody’s Investors Service and a rating of “A-1” or better by Standard &
Poor’s Ratings Services; (c) certificates of deposit or time deposits fully
collateralized by Government Obligations; (d) any repurchase agreement by the
Trustee that is with a bank or institution, which bank, institution or holding
company thereof is rated “BAA1” or better by Moody’s Investors Service or “B+”
or better by Standard & Poor’s Ratings Services, provided that such
repurchase agreement may not extend more than 30 days beyond its issuance and
such repurchase obligation will be for Government Obligations; and
notwithstanding any of the foregoing, to the extent that any obligations
described in this definition are repurchase agreements then (i) the Trustee must
have perfected a first security interest in such obligations, (ii) the Trustee
or a third party acting solely as agent for the Trustee must have possession of
such obligations, (iii) such obligations must be free and clear of third party
claims, and (iv) any investment in a repurchase agreement will be considered to
mature on the date the bank or trust company providing the repurchase agreement
is obligated to repurchase the Government Obligations; (e) commercial paper or
finance company paper rated not less than A 1 or prime-one or their equivalents
by Standard & Poor’s Ratings Services and Moody’s Investors Service; (f)
state and local government obligations, the interest on which is excludable from
the gross income of the holder thereof for federal income tax purposes pursuant
to Section 103(a) of the Code, provided that such obligations have a rating
of “A “ or better from Standard & Poor’s Ratings Services or Moody’s
Investors Service; (g) the “Tax-Exempt Money Market Fund” for which the Trustee
acts as investment advisor; (h) the “Short Term Investment Fund” of the Trustee;
and (i) so long as the Original Purchaser is the Bondowner of all of the Bonds
Outstanding,
investment
agreements or certificates of deposit as may be approved by the Borrowers and
the Original Purchaser;
provided
,
however
, that such investment
ratings shall apply only at the time of acquisition of such
investment.
Rebate Credit
Account
: The account described in Section 3.06, which
account shall not be pledged for the benefit of the Bondowners
hereunder.
Record
Date
: For the interest payable on any Payment Date means the
day (whether or not a Business Day) next preceding such Payment
Date.
Redemption
Date
: The date upon which any Bond is to be redeemed prior to
maturity.
Redemption
Fund
: The Trust Fund described in
Section 3.04.
Registered
Bondowner
: The person in whose name a Bond is registered in
the Bond Register.
Requirements of
Law
: As to any matter or Person, the Certificate or Articles
of Incorporation or Organization and Bylaws or Operating Agreement or other
organizational or governing documents of such Person, and any law (including,
without limitation, any Environmental Law), ordinance, treaty, rule, regulation,
order, decree, determination or other requirement having the force of law
relating to such matter or Person and, where applicable, any interpretation
thereof by any Government Authority.
Requisite
Consent
: Unless all Bonds are then owned by the Borrower, the
affirmative written consent of Bondowners registered as the Bondowners in
aggregate not less than a majority in principal amount of the Bonds (other than
Bonds owned by the Borrowers or any “related person” as defined in
Section 147 of the Code) at the time Outstanding.
Security
Documents
: the Construction Mortgage and Assignment of Leases
and Rents, the Pledge and Security Agreement, the Security Agreement, [the
Collateral Assignment of Architect’s Contract], and the Collateral Assignment of
Construction Contracts, all by the Borrowers in favor of the Trustee and the
Original Purchaser.
Series A
Bonds
: The Issuer’s $3,000,000 principal amount Industrial
Development Revenue Bonds, Series 2007A (Advanced Fiberglass Technologies
Project), authorized by and issued pursuant to Section 2.01(a)(i)of this
Bond Agreement.
Series B
Bonds
: The Issuer’s $500,000 principal amount Industrial
Development Revenue Bonds, Series 2007B (Advanced Fiberglass Technologies
Project), authorized by and issued pursuant to Section 2.01(a)(ii) of this
Bond Agreement.
Series C
Bonds
: The Issuer’s $500,000 principal amount Industrial
Development Revenue Bonds, Series 2007C (Advanced Fiberglass Technologies
Project), authorized by and issued pursuant to Section 2.01(a)(iii) of this
Bond Agreement.
Statute
: Section 66.1103
of the Wisconsin Statutes, as amended from time to time.
Subsidiary
: As
to any Person, a corporation or limited liability company of which shares of
stock or membership interest having voting power (other than stock or membership
interest having such power only by reason of the happening of a contingency that
has not occurred) sufficient to elect a majority of the board of directors or
other managers of such corporation or limited liability company are at the time
owned, or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by such
Person.
Tax
Certificate
: The Borrower’s certification, executed and
delivered on and as of the Closing Date, certifying to certain facts and
circumstances upon which Bond Counsel will rely in part in issuing its Opinion
of Counsel as to the tax-exempt status of interest on the Bonds, subject to the
assumptions, qualifications and limitations set forth in such Opinion of
Counsel.
Trustee
: Initially,
Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, and any successor banking
corporation, banking association or trust company at the time serving as
corporate trustee hereunder.
Trustee’s Address
and
Trustee’s Principal
Office
: The address or office which the Trustee designates for
the delivery of notices or payments hereunder. Until changed by
notice from the Trustee to the Borrower, the Issuer and the Original Purchaser,
the Trustee’s Address and Principal Office is:
Nekoosa
Port Edwards State Bank
405
Market Street
P.O.
Box 9
Nekoosa,
WI 54457
Phone: (715)
886-3104
Fax: (715)
886-3310
|
Trust
Funds
: The trust funds and accounts administered by the
Trustee hereunder.
Unassigned
Rights
: The Borrower’s obligations to the Issuer under
Section 4.13, Section 6.09 and Section 9.07.
Section 1.02
Use of Phrases; Rules of
Construction
. The
following provisions shall be applied wherever appropriate herein:
“
Herein
,” “
hereby
,” “
hereunder
,” “
hereof
” and other
equivalent words refer to this Bond Agreement as an entirety and not solely to
the particular portion hereof in which any such word is used.
The
definitions set forth in Section 1.01 shall be deemed applicable whether
the words defined are herein used in the singular or the plural.
Wherever
used herein, any pronoun or pronouns shall be deemed to include both the
singular and plural and to cover all genders.
Unless
otherwise provided, any determinations or reports hereunder which require the
application of accounting concepts or principles shall be made in accordance
with GAAP.
ARTICLE
II
ISSUANCE
AND TERMS OF BONDS
Section 2.01
Creation of Bonds for
Issuance
. There
is hereby created for issuance an issue of Bonds to be designated:
CITY OF
WISCONSIN RAPIDS, WISCONSIN
INDUSTRIAL
DEVELOPMENT REVENUE BONDS, SERIES 2007A, 2007B and 2007C
(ADVANCED
FIBERGLASS TECHNOLOGIES PROJECT)
The Bonds
shall be issued in the aggregate principal amount not to exceed FOUR MILLION
AND 00/100 DOLLARS ($4,000,000.00).
(a)
The
Issuer has, pursuant to the Bond Resolution, further divided the Bonds into
three series, designated as “Series 2007A,” “Series 2007B” and
“Series 2007C” as provided below. The Bonds of each and all
Series shall have parity with all Bonds of every other Series as provided in
Section 2.22.
(i)
The Bonds
designated as Series 2007A shall be issued in the maximum aggregate
principal amount of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00) and are
referred to herein as the “
Series A
Bonds
.”
(ii)
The Bonds
designated as Series 2007B shall be issued in the maximum aggregate
principal amount of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000) and are
referred to herein as the “
Series B
Bonds
.”
(iii)
The Bonds
designated as Series 2007C shall be issued in the maximum aggregate
principal amount of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000) and are
referred to herein as the “
Series C
Bonds
.”
(b)
The Bonds
of each series shall be numbered in such manner as the Trustee shall deem
appropriate, provided that each particular Bond shall have a different
identifying number. The Bonds shall be issuable in the form of
typewritten or printed, fully registered Bonds. The Bonds shall
specify the Original Issue Date as their original issue date, and each
particular Bond shall be dated, as its registration date, the date of its
authentication.
Section 2.02
Maturity; Repayment of
Principal; Interest Payments
The Bonds
shall mature as follows:
(i)
The
Series A Bonds shall have a final maturity date (the “
Series A Maturity
Date
”) of July 28, 2027. On the Series A Maturity Date
there shall be a full and final payment of all unpaid principal and accrued
unpaid interest in respect of the Series A Bonds.
(ii)
The
Series B Bonds shall have a final maturity date of July 28, 2014 (the
“
Series B
Maturity Date
”). On the Series B Maturity Date there
shall be a full and final payment of all unpaid principal and accrued unpaid
interest in respect of the Series B Bonds.
(iii)
The
Series C Bonds shall have a final maturity date of July 28, 2014 (the
“
Series C
Maturity Date
”). On the Series C Maturity Date there
shall be a full and final payment of all unpaid principal and accrued unpaid
interest in respect of the Series C Bonds.
(b)
Principal
of the Bonds shall be repaid by the Issuer (from payments to be made by the
Borrowers hereunder) in such amounts and on such dates as provided in
Section 2.05.
(c)
Notwithstanding
anything else herein to the contrary, the principal amount of any series of
Bonds Outstanding shall never exceed the aggregate amounts transferred from the
Original Purchaser to the Trustee for Deposit into the Project Fund pursuant to
Section 3.01 less repayments of principal made by the Issuer,
provided
,
however
, that nothing herein
shall be construed to obligate the Borrowers to proceed with the Project, and in
the event Borrowers do not proceed with the Project, the Borrowers shall have no
obligation hereunder, other than the repayment, together with interest, of
amounts advanced by the Original Purchaser.
(d)
Payments
of principal in excess of the scheduled installments set forth herein and
related payments of premium, if any, shall be credited against scheduled
installments in inverse order with respect to the Bonds (for this purpose,
treating all Bonds as a single series).
Section 2.03
Interest on the
Bonds
.
(a)
Series A
Bonds
.
(i)
Initial Interest
Rate
. From the Original Issue Date through February 28,
2012, the Series A Bonds shall bear interest at a fixed rate of Five and
50/100 percent (5.50%) per annum.
(ii)
Interest Rate
Resets
. The interest rate on the Series A
Bonds shall be reset on each Reset Date to a fixed rate calculated as follows
(i) the Prime Rate in effect on the Business Day next preceding the Reset
Date
minus
(ii) 2.25 percentage points. The Series A Bonds shall bear
interest from each Reset Date through the day immediately prior to the next
Reset Date at the rate determined according to the formula in the preceding
sentence (in each case, the “
Reset
Rate
”). Notwithstanding the foregoing, the interest rate on
the Series A Bonds shall never (i) exceed the Maximum Rate, nor
(ii) be lower than the Minimum Rate.
(b)
Series B
Bonds
. The Series B Bonds shall bear interest from the
Original Issue Date through the Series B Maturity Date at a fixed rate of Five
and 75/100 percent (5.75%) per annum.
(c)
Series C
Bonds
. The Series C Bonds shall bear interest from the
Original Issue Date through the Series C Maturity Date at a fixed rate of
Five and 75/100 percent (5.75%) per annum.
(d)
Definitions
. The
following definitions are applicable to this Section 2.03:
(i)
Marginal Bank Tax
Rate
: The tax rate at which a commercial bank located in the
United States and subject to federal income taxation as a corporation would be
taxed for federal income tax purposes pursuant to the applicable provisions of
the Code or any future
United
States internal revenue or similar laws applicable to such bank, if such bank’s
taxable income were in the highest tax bracket specified by the
Code. As of the date of this Bond Agreement, the Marginal Bank Tax
Rate is Thirty-Five and 00/100 percent (35.00%)
(ii)
Reset Date
: Each of
February 28, 2012; February 28, 2017; and February 28, 2022.
(iii)
Maximum Rate
:
Eighteen and 00/100 percent (18.00%) per annum.
(iv)
Minimum
Rate
: Four and 00/100 percent (4.00%) per annum.
(v)
Default
Rate
: The rate of interest per annum equal to the greater of
(i) the Prime Rate or (ii) the sum of the then-applicable tax-exempt
interest rate or rates applicable to each Series of Bonds as determined pursuant
to Section 2.03, plus 3.0%, but in any event not greater than the Maximum Rate
nor less than the Minimum Rate.
(e)
Tax-Exempt Yield
Protection
. Notwithstanding the foregoing, the interest rate
on the Bonds shall be subject to further adjustment on any Payment Date if on
such Payment Date the Marginal Bank Tax Rate has changed to become either
greater than or less than 35%. The adjusted interest rate shall be
determined by multiplying the then-applicable interest rate on the Bonds
immediately prior to such change by a fraction: (i) the numerator of which
is the difference between (A) 100% and (B) the applicable Marginal Bank Tax
Rate immediately after such change and (ii) the denominator of which is the
difference between (A) 100% and (B) the Marginal Bank Tax Rate in
effect immediately prior to such change.
(f)
Interest Determinations
Final
. All determinations of the interest rate hereunder shall
be final and conclusive absent manifest error.
(g)
Computation of
Interest
. Interest on the Bonds shall be computed on a 360 day
year, actual days elapsed basis. Interest shall accrue only on principal amounts
actually deposited and from the date such amounts are actually deposited into
the Project Fund pursuant to Section 3.01 and Section 4.02 of this
Bond Agreement.
(h)
Interest-Only
Payments
. Interest shall be payable on each Payment Date,
commencing on March 28, 2007 through and including July 28, 2007 (the “
Interest Only
Period
”). From and after August 28, 2007, interest shall be
included in the monthly principal and interest payments payable as provided in
Section 2.05(a).
(i)
Default
Interest
. Overdue principal and interest on each Bond shall
(to the extent legally enforceable) bear interest at the Default
Rate. Any interest on any Bond which is payable, but is not
punctually paid or duly provided for, may be paid in any lawful manner, at the
discretion of the Trustee.
Section 2.04
Occurrence of a
Determination of Taxability
. The
Bonds shall bear interest, payable on the first Payment Date after the
occurrence of a Determination of Taxability with respect to all prior periods,
computed at the rate set forth in the following paragraph, but not to exceed the
Maximum Rate (the “
Taxable Rate
”) (on a
360-day year, actual days elapsed basis) on the outstanding principal amount of
the Bonds (as reduced from time to time) from the date of the Event of
Taxability, less any interest already paid, from the date of the Event of
Taxability
to such Payment Date. Thereafter, the Bonds shall bear interest at
the Taxable Rate (“
Taxable Interest
”) as
provided in this Section on the Bonds Outstanding on each Payment
Date. Except for Taxable Interest allocable to the period between the
Event of Taxability and the Payment Date immediately succeeding the
Determination of Taxability, Taxable Interest payable under this Section shall
be payable with respect to the same period, at the same time and in the same
manner as interest payments regularly paid pursuant to this Bond
Agreement.
Taxable
Interest payable on the Bonds of all Series shall be equal to the higher of
(i) the Prime Rate or (ii) the sum of the then-applicable tax-exempt
interest rate or rates applicable to each Series of Bonds as determined pursuant
to Section 2.03, plus 3.0% per annum. The Borrowers shall also
pay to the Bondowners (and any former Bondowners holding Bonds during any period
subsequent to an Event of Taxability) as additional interest, the amount of
penalties, additions to tax (exclusive of any taxes imposed under Section 11 or
any successor provision of the Code) or interest assessed against the Bondowners
(and former Bondowners) on account of a Determination of
Taxability. Taxable Interest to be paid pursuant to this Section for
the period between the Event of Taxability and the Payment Date immediately
succeeding the Determination of Taxability shall be paid immediately following
the Determination of Taxability in the same manner as interest is paid to
Bondowners in accordance with this Bond Agreement.
Any
Bondowner shall have the right, but not the obligation, to arrange for the
contest of an allegation that an Event of Taxability has occurred, by
appropriate legal proceedings. In the event no Bondowner shall
contest the Event of Taxability, the Borrowers shall have the option but not the
obligation to do so. If (i) the Borrowers shall have made any
additional payments to a Bondowner or former Bondowner by reason of an Event of
Taxability pursuant to this Section, and (ii) it shall be successfully claimed
for the taxable year in question that the interest on the Bonds for such taxable
year is excluded from the Bondowner’s or former Bondowner’s taxable income for
federal income tax purposes (for this purpose a claim shall be deemed successful
only upon the occurrence of a “determination,” as defined in
Section 1313(a) or any successor provision of the Code) or, if the
Bondowner or former Bondowner shall not have included such interest in the
Bondowner’s or former Bondowner’s taxable income for federal income tax purposes
upon expiration of the statute of limitations provided by Section 6501 or
any successor provision of the Code with respect to such taxable year, then the
Bondowner or former Bondowner (as the case may be) shall pay to the Borrowers
the amount of any such additional payments which had been made by the Borrowers
to the Bondowner or former Bondowner, less any actual expenses incurred by such
Bondowner or former Bondowner as a result of the alleged Event of
Taxability. Upon successful challenge of an Event of Taxability, the
interest rate on the Bonds shall return to the interest rate ordinarily payable
hereunder as if no Event of Taxability had ever been alleged.
Section 2.05
Mandatory and Optional
Redemption of Bonds
. No
Bond may be called for redemption prior to its stated maturity except as
provided in this Section 2.05;
provided
,
however
, that nothing herein
shall be deemed to limit the right of acceleration of Bond maturities upon the
occurrence of a Bond Default.
(a)
Amortizing
Redemptions
. Each Series of Bonds shall be subject to
mandatory redemption in accordance with the redemption schedule set forth. On or
prior to each “
Amortizing Redemption
Date
” set forth below, the Borrowers shall provide to the Trustee
immediately available funds sufficient to effect the redemption of the principal
amount of Bonds
required
to be redeemed on such Amortizing Redemption Date as set forth below plus
accrued interest to the Redemption Date.
(i)
Series A
Bonds
. Following the Interest Only Period, beginning on August
28, 2007, and on the 28
th
day of
each calendar month through and including July 28, 2012, sixty (60) equal
monthly principal and interest payments each in the amount of Twenty Thousand
Seven Hundred Seventy-Six and 10/100 Dollars ($20,776.10). On each
Reset Date, the monthly principal and interest payments due hereunder shall be
adjusted to level monthly principal and interest payments sufficient to amortize
the then-current Principal Balance hereof over the remaining term to the
Series A Maturity Date at the applicable Reset Rate (with the first such
adjusted payment due on the March 28th following the Reset Date).
(ii)
Series B
Bonds
. Following the Interest Only Period, beginning on August
28, 2007, and on the 28
th
day of
each calendar month through and including July 28, 2014, eighty-four (84) equal
monthly principal and interest payments in the amount of Seven Thousand Two
Hundred Sixty-Five and 78/100 Dollars ($7,265.78);
(iii)
Series C
Bonds
. Following the Interest Only Period, beginning on August
28, 2007, and on the 28
th
day of
each calendar month through and including July 28 2014, eighty-four
(84) equal monthly principal and interest payments in the amount of Seven
Thousand Two Hundred Sixty-Five and 78/100 Dollars ($7,265.78).
(b)
Redemption at Original
Purchaser's Option (Put Right)
. The Series A Bonds shall
be subject to mandatory redemption, in whole, but not in part, on any Reset Date
at the option of the Original Purchaser, so long as the Original Purchaser owns
of Record all of the Outstanding Series A Bonds. The Original
Purchaser shall give prior written notice to all Parties of such mandatory
redemption not less than ninety (90) days prior to any Reset Date. In
the case of a redemption pursuant to this Section 2.05(b), the redemption
price shall be 100% of the principal amount of the Bonds so redeemed, plus all
accrued interest to the Put Date.
(c)
Redemption at Borrower's
Option (Call Right)
. Any Bond not redeemed pursuant to
subsections (a) or (b), above, is subject to redemption in whole or in part
at the option of the Borrowers on any Payment Date upon thirty (30) days prior
written notice ("
Call
Notice
") to the Trustee and, so long as the Original Purchaser is the
owner of any Outstanding Bonds, to the Original Purchaser. Any such
Call Notice shall specify the Payment Date and the principal amount of the Bonds
to be redeemed on such Payment Date. In the Call Notice, the
Borrowers shall also identify the source of funds that it will use to pay the
redemption price (including any premium) and shall certify that the
circumstances described in subsection (d)(ii), below, do not
exist. In the event the Original Purchaser is not the holder of
Record of all (100%) principal amount of the Bonds then outstanding, then the
Call Notice shall be given to the Trustee not less than 60 days prior to the
Payment Date on which the Borrowers propose to effect such redemption (in which
case the Trustee shall comply with the requirements of Section 2.08
pertaining to notices of redemption). In the case of a redemption
pursuant to this Section 2.05(c), the redemption price shall be par plus
accrued interest to the Redemption Date, plus the Redemption Premium, if any,
calculated as determined under subsection (d), below.
(d)
Premium Upon Certain
Redemptions
. A premium ("
Redemption Premium
")
shall be due upon certain redemptions pursuant to subsection (c), above
(but not in respect of
redemptions
pursuant to either subsection (a) or
subsection (b)). The Redemption Premium shall be payable
in the following circumstances and shall be calculated as provided
below:
(i)
In the
case of an optional redemption under subsection (c), or one or more such
redemptions, in any calendar year in a principal amount that exceeds Twenty and
00/100 percent (20.00%) of the principal amount of Bonds Outstanding on
December 31 of the next preceding calendar year (the "
Threshold
"), there
shall be due upon redemption a premium calculated as follows: (i) the
principal amount being redeemed in excess of the Threshold, multiplied by
(ii) Four and 00/100 percent (4.00%).
(ii)
In the
case of an optional redemption in any amount where the source of funds to be
used by the Borrowers is derived by the Borrowers from a loan, borrowing,
extension of credit, credit facility, letter of credit or otherwise from a bank,
financial institution or other institutional lender (other than the Original
Purchaser or the Participant), or one or more of such borrowings or
transactions, then there shall be due upon redemption a premium calculated as
follows: (i) the principal amount being redeemed multiplied by
(ii) four and 00/100 percent (4.00%).
(e)
Notwithstanding
any provision of ARTICLE X or any other provision of the Bond Agreement to
the contrary, the provisions of subsections (a) through (d) of this
Section 2.05, including the redemption schedule set forth in
Schedule 2.05, may, so long as the Original Purchaser is the Owner of
Record of all (100%) in principal amount of the Bonds then Outstanding, be
amended or modified in any respect by a written instrument executed
by the Borrowers, the Guarantor and the Original Purchaser,
provided,
that such amendment
shall not be effective unless the Borrowers have obtained (at the Borrowers’
expense) a written Opinion of Bond Counsel to the effect that such amendment or
modification shall not, in and of itself, cause an Event of Taxability to
occur. No prior notice to or consent of the Issuer or the Trustee
shall be required to effect an amendment or modification pursuant to this
Section 2.05(e);
however
, the Borrowers shall
file with the Issuer and the Trustee the written instrument, signed by the
Borrowers, the Guarantor and the Original Purchaser, together with the written
opinion of Bond Counsel, within 30 days of the effective date of any such
amendment or modification and upon such filing this Bond Agreement shall for all
purposes be amended as of the date appearing on such
instrument. Notwithstanding the foregoing, the failure to make or a
delay in making such filing shall not affect the validity of such
amendment. The Issuer and the Trustee agree to cooperate with any
requirement of Bond Counsel necessary in the Opinion of Bond Counsel to render
such Opinion, including without limitation rendering any certificate, executing
any informational return on Form 8038 with the Service, or otherwise,
provided
that the Issuer or
the Trustee shall in each case be indemnified for the costs and expenses of any
such action as provided in Section 6.09.
Section 2.06
Optional Redemption of Bonds
Upon Occurrence of Certain Extraordinary Events
. The
Bonds shall be subject to redemption, in whole or in part, at par plus accrued
interest to the Redemption Date at the option of the Borrower, or the Bondowners
by Requisite Consent. If the Project is affected as set forth below,
each shall have an independent option to have the Loan repaid in whole out of
Net Proceeds of an insurance or condemnation award relating to destruction or
damage or condemnation of all or any part of the Project, and to direct the
Issuer (i) to call for redemption and prepayment all the Outstanding Bonds if
the Project, is set forth below, or (ii) to call for redemption and prepayment
that amount of Outstanding Bonds attributable to debt incurred for the Project
as determined by the Trustee if:
(a)
The
Project shall have been damaged or destroyed to such extent that, in the opinion
of the Borrowers expressed in a Borrowers’ Certificate, or in the written
opinion of an independent architect acceptable to the Trustee and, if the
Original Purchaser then owns any of the Bonds, the Original Purchaser, filed
with the Issuer and the Trustee following such damage or destruction (i) the
completion of the Project will be delayed for at least six months, (ii) it is
not practicable or desirable to rebuild, repair or restore the Project within a
period of six consecutive months following such damage or destruction, or (iii)
the Borrowers are or will be thereby prevented from carrying on its normal
operations for a period of at least six consecutive months;
(b)
Title to
or the temporary use of all or substantially all of the shall have been taken
under the exercise of the power of eminent domain by any governmental Issuer to
such extent that, in the opinion of the Borrowers expressed in a Borrowers’
Certificate, or in the written opinion of an independent architect acceptable to
the Trustee and, if the Original Purchaser then owns any of the Bonds, the
Original Purchaser filed with the Issuer and the Trustee (i) the completion of
the Project will be delayed for at least six months, or (ii) the Borrowers are
or will be thereby prevented from carrying on its normal operations at the
Project site for a period of at least six consecutive months;
(c)
Any court
or administrative body of competent jurisdiction shall enter a judgment, order
or decree requiring the Borrowers to cease all or any substantial part of its
operations at the Project site to such extent that, in the opinion of the
Borrowers expressed in the Borrower’s Certificate, or in the written opinion of
Counsel, who is also acceptable to the Original Purchaser if the Original
Purchaser then owns any of the Bonds, filed with the Issuer and the Trustee, the
Borrowers are or will be thereby prevented from carrying on its normal
operations at the Project site for a period of at least six consecutive
months;
(d)
As a
result of any changes in the Constitution of Wisconsin or the Constitution of
the United States of America or of legislative or administrative action (whether
state or federal) or by final decree, judgment or order of any court or
administrative body (whether state or federal), this Bond Agreement shall have
become void or unenforceable or impossible of performance in accordance with the
intent and purposes of the parties as expressed herein, or unreasonable burdens
or excessive liabilities shall have been imposed on the Issuer or any Borrower
including, without limitation, federal, state or other ad valorem, property,
income or other taxes not being imposed on the date hereof; or
(e)
If it
shall be discovered that any Borrower’s title to the Project shall be materially
defective, and any Borrower’s title to the Project shall be lost by reason of
such defect.
In any
such case, the Borrowers or Bondowners shall, to exercise their respective
option hereunder, give notice to the Issuer, the Trustee and the Bondowners or
the Borrower, as the case may be, in writing of its or their intent to exercise
this option and specifying the proposed Redemption Date, within thirty (30) days
following discovery of the event by the party determining to exercise its option
hereunder. The exercise of either party of its option to redeem the
Bonds shall be binding on all parties hereto. Within sixty (60) days
after the giving of notice as set forth above, the Borrowers shall deposit with
the Trustee a sum sufficient, together with other funds held by the Trustee and
available for such purpose (i) to redeem the Bonds, in whole or in part, as
applicable at a redemption price equal to the principal amount thereof, (ii) to
pay the interest which will become
due on
such Bonds to and including the Redemption Date, and (iii) to pay all expenses
of the Issuer and the Trustee accrued and to accrue through the Redemption
Date.
If any
Borrower shall have received proceeds of an insurance or condemnation award
relating to destruction or damage or condemnation of all or any part of the
Project, and such net proceeds exceed the amount necessary to rebuild, repair or
restore the applicable Facility, such Borrower agrees to direct the Issuer to
call for redemption and prepayment Outstanding Bonds equal to the amount of such
resulting excess net proceeds.
Section 2.07
Purchase and Cancellation of
Bonds
. The
Borrowers shall have the right to purchase any outstanding Bond and deliver it
to the Trustee for cancellation. Also, the Trustee may purchase any
outstanding Bond for cancellation in accordance with this Bond
Agreement. Any such purchase and cancellation of a Bond shall
ipso facto
reduce the unpaid
principal balance of the Loan on the date of such cancellation by an amount
equal to the principal amount of such Bond. Further, any such
purchase shall be deemed to constitute a redemption of a like principal amount
of Bonds and prior to and in connection with such purchase, the Borrowers shall
comply with the requirements of Section 2.05(c) (including the payment of a
redemption premium under Section 2.05(d), if applicable). The
reduction shall be applied to the principal installment on the Loan having the
same maturity as the Bond so purchased and cancelled. Nothing in this
Section 2.07 shall require the owner of any Bond to sell such Bond to the
Borrowers.
Section 2.08
Notice and Effect of
Redemption
. Notice
of the call for any redemption of Bonds prior to maturity shall be given by the
Trustee by mailing a copy of the redemption notice by first-class mail not less
than 30 nor more than 60 days prior to the Redemption Date to the Bondowner of
each Bond to be redeemed at the address shown on the Bond Register;
provided
,
however
, that failure to give
any such notice as aforesaid or any defect therein with respect to any
particular Bond shall not affect the validity of any proceedings for the
redemption of any other Bond.
Each
redemption notice shall (i) identify the particular Bonds or portions thereof to
be redeemed (including, at a minimum, certificate numbers and called amount for
each certificate (for partial calls), Redemption Date, redemption agent name and
address, date of issue, maturity date, and other descriptive information, if
any, that accurately identifies the particular Bonds called for redemption),
(ii) identify the provisions of this Bond Agreement pursuant to which the Bonds
are being redeemed, (iii) identify the place of payment, (iv) state the
applicable redemption price, including the premium, if any, and (v) state that
interest on the Bonds or portions thereof thus called for redemption will cease
to accrue from and after the Redemption Date specified therein.
If
pursuant to this Bond Agreement the Trustee shall hold funds in the form of cash
or Government Obligations which are available and will be sufficient in amount
to pay the principal of and premium, if any, on the Bonds or portions thereof
thus called for redemption and to pay the interest thereon to the Redemption
Date, such Bonds or portions thereof shall cease to bear interest from and after
the Redemption Date in question.
Section 2.09
Bonds to be Limited
Obligations of the Issuer
. The
Bonds shall be limited obligations of the Issuer payable by it solely from the
Pledged Revenues. The Bonds shall not constitute a debt or obligation
of the Issuer, the county in which it is located, the State of Wisconsin or any
political subdivision thereof within the meaning of any State of Wisconsin
constitutional
provision or statutory limitation and shall not be a charge against its or their
respective general credit or taxing powers and shall not give rise to a
pecuniary liability of the Issuer. In making the agreements,
provisions and covenants set forth in this Bond Agreement, the Issuer has not
obligated itself, except to the extent that the Issuer is authorized to act
pursuant to Wisconsin law and except with respect to the Pledged
Revenues. The Issuer and any of its officials, officers, employees,
members or agent shall have no monetary liability arising out of the obligations
of the Issuer hereunder or in any connection with any covenant, representation
or warranty made by the Issuer herein and neither the Issuer nor its officials
shall be obligated to pay any amounts in connection with the transactions
contemplated hereby other than from Pledged Revenues or other monies received
from the Borrower.
Section 2.10
Source of
Payment
. The
principal of, premium, if any, and interest on the Bonds shall be payable by the
Issuer solely from the Pledged Revenues.
Section 2.11
Pledged
Revenues
. The
Pledged Revenues are hereby specifically, irrevocably and exclusively pledged by
the Issuer to the Trustee to secure the punctual payment of the principal of,
premium, if any, and interest on the Bonds, and shall be used for no other
purpose except as otherwise expressly authorized herein.
Section 2.12
Form of
Bonds
. The
Bonds shall be issuable only as fully registered Bonds substantially in the form
set forth in
Exhibit B
attached hereto, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Bond Agreement and may
have such letters, numbers or other marks of identification and such legends or
endorsements placed thereon, as may be required to comply with the rules of any
securities exchange, or as may, consistently herewith, be determined by the
officers executing such Bonds as evidenced by their execution of the
Bonds. There may be printed or otherwise reproduced on any Bond form
(i) the legal opinion of Bond Counsel, (ii) customary “back panel” summary
information, (iii) restrictions on transfer in form approved by the Trustee as
required in particular instances, and (iv) any other information deemed
necessary or appropriate by the Issuer or the Trustee with the approval of Bond
Counsel to give notice of information to Bondowners. Pending the
preparation of definitive Bonds the Issuer may execute and the Trustee shall
authenticate and deliver temporary Bonds, substantially of the tenor of the
definitive Bonds in lieu of which they are issued, in fully registered form,
with such appropriate insertions, omissions, substitutions and other variations
as the Issuer’s Highest Elected Official and Clerk may determine, as evidenced
by their manual signing of such Bonds. If temporary Bonds are issued,
the Trustee will cause definitive Bonds to be prepared without unreasonable
delay. After the preparation of definitive Bonds, the temporary Bonds
shall be exchangeable for definitive Bonds upon surrender of the temporary Bonds
at the Trustee’s Principal Office without charge to the
Bondowner. Upon surrender for cancellation of any one or more
temporary Bonds, the Issuer shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Bonds of
authorized denominations. Until so exchanged the temporary Bonds
shall in all respects be entitled to the same benefits hereunder as definitive
Bonds, and the principal of, premium, if any, and interest thereon, when and as
payable, shall be paid to the Bondowners of the temporary Bonds.
Section 2.13
Execution of
Bonds
. The
Bonds shall be executed on behalf of the Issuer by its Highest Elected Official
under the official seal of the Issuer attested to by its Clerk. The
signatures of the Highest Elected Official and Clerk on the Bonds may be manual
or facsimile. The official seal of the Issuer on the Bonds may be
actually impressed or imprinted or may be reproduced thereon by
facsimile.
Bonds
bearing the manual or facsimile signatures of the persons who were the Issuer’s
Highest Elected Official and Clerk at the time of the execution thereof shall be
valid and sufficient for all purposes notwithstanding that such persons or
either of them have ceased to hold such offices prior to the authentication and
delivery of the Bonds or did not hold such offices at the date of the
Bonds. For this purpose a Bond executed by facsimile signature shall
be deemed to have been executed on the date of the printing
thereof.
Section 2.14
Authentication
. No
Bond shall be entitled to any benefit hereunder or be valid for any purpose
unless there appears on such Bond a certificate of authentication substantially
in the form set forth in
Exhibit B
,
executed on behalf of the Trustee with the manual signature of an authorized
signatory of the Trustee. Such certificate of authentication executed
as aforesaid on a Bond shall be conclusive evidence that such Bond has been
authenticated and delivered hereunder.
Section 2.15
Provision for Registration,
Transfer and Exchange of Bonds
. The
Trustee shall cause a register (herein sometimes referred to as the “
Bond Register
”) to be
kept for the purpose of providing for the registration and transfer of Bonds in
accordance with the provisions of this Section 2.15 and such reasonable
additional regulations as the Trustee may prescribe. Subject to such
regulations, any Bondowner may cause its address on the Bond Register to be
changed by giving written notice to the Trustee. At reasonable times
and under reasonable regulations established by Trustee, the Bond Register may
be inspected and copied by the Borrower, the Issuer or by Bondowners (or a
designated representative thereof) of 10% or more in aggregate principal amount
of Bonds then Outstanding, the authority of such designated representative to be
evidenced to the satisfaction of Trustee.
Each Bond
shall be fully negotiable. Any Bond may be transferred but only by a
written assignment duly executed by the Bondowner or by such Bondowner’s duly
authorized legal representative. Upon presentation and any other
holder of a participating interest in the Bonds of the Bond together with said
executed form of assignment at the Trustee’s Principal Office, the Trustee shall
register the transfer in the Bond Register;
provided
,
however
, that the Trustee
shall have no obligation to register the transfer unless the executed assignment
shall be satisfactory to it in form and substance. Upon registration
of the transfer of a Bond, the Trustee shall cancel the surrendered Bond and the
Issuer shall issue, and the Trustee shall authenticate, one or more new Bonds of
authorized denominations of the same maturity and interest rate and in the same
aggregate outstanding principal amount as the surrendered Bond.
The
Bondowner requesting any registration of transfer or exchange of Bonds shall pay
with respect thereto any resulting tax or governmental charge. All
such payments shall be conditions precedent to the exercise of the Bondowner’s
rights of registration of transfer or exchange. The Trustee shall not
be required to register the transfer or to exchange any particular Bond after
such Bond has been selected for redemption. All registrations of
transfer and exchanges of Bonds shall be accomplished in such manner that no
increase or decrease in interest payable on the Bonds results
therefrom.
Section 2.16
Persons Treated as
Bondowners
. The
Issuer and the Trustee shall treat the person in whose name any Bond is
registered as the absolute owner of such Bond for the purpose of receiving
payment of the principal of, premium, if any, and interest thereon and for all
other purposes whatsoever, whether or not such Bond is overdue and irrespective
of any actual, implied or imputed notice to the contrary. In
particular, neither the Participant nor any other holder of a participating
interest in the Bonds shall be treated as a Bondowner except in accordance with
the provisions described in the second-to-last sentence of
Section 6.20.
Section 2.17
Manner of Payment of
Bonds
. All
principal installments of, premium, if any, and interest on the Bond issued to
the Original Purchaser shall be paid directly to the Original Purchaser without
presentation or surrender of the Bonds by the Original Purchaser to the
Trustee. The Original Purchaser shall provide confirmation to the
Trustee promptly upon receipt of such payment which notice shall include the
date of payment, the amount of principal installments of, premium, if any, and
interest paid on the Bond. The interest on any Bond and the principal
which is payable and is punctually paid or duly provided for, on any Payment
Date shall be paid by check drawn by the Borrowers payable to the order of the
person in whose name that Bond is registered as of the close of business on the
Record Date for such interest and mailed to such person at the address shown on
the Bond Register, initially, the Original Purchaser. Any interest on
any Bond which is payable, but is not punctually paid or duly provided for, may
be paid in any lawful manner, at the discretion of the Trustee. The
principal of, premium, if any, and interest on all Bonds shall be paid in lawful
money of the United States of America.
In any
case where the date of maturity of interest on or principal of the Bonds or the
date fixed for redemption of any Bonds shall be, in the city in which the
Trustee’s Principal Office is located, a Saturday, Sunday or a legal holiday,
the payment of principal, premium, if any, and interest need not be made on such
date in such city but may be made on the next succeeding Business
Day.
Interest
on any Bond which is payable, and is punctually paid or duly provided for, on
any Redemption Date that is not a regularly scheduled Payment Date, shall be
paid by check drawn by the Borrower, payable to the order of the person in whose
name the Bond is registered at the close of business on the day next preceding
such Redemption Date, initially the Original Purchaser.
Section 2.18
Mutilated, Lost, Stolen or
Destroyed Bonds
. In
the event any Bond is mutilated, lost, stolen or destroyed, the Issuer may
execute and the Trustee may authenticate a new Bond of like date, maturity and
denomination as the Bond mutilated, lost, stolen or destroyed. In the
case of any lost, stolen or destroyed Bond, there shall first be furnished to
the Issuer and the Trustee evidence of such loss, theft or destruction
satisfactory to the Issuer and the Trustee, together with indemnity satisfactory
to them. In the event any such Bond shall have matured, the Trustee
instead of issuing a substitute Bond may pay the same without surrender
thereof. The Issuer and the Trustee may charge the Bondowner of such
Bond with their reasonable fees and expenses in this connection.
Section 2.19
Trustee Designated as Bond
Registrar
. The
Trustee shall be the bond registrar for and in respect of all
Bonds.
Section 2.20
Disposition of Bonds Upon
Payment; Safekeeping of Bonds Surrendered for Exchange
. All
Bonds fully paid, fully redeemed or purchased by the Trustee for cancellation
under the provisions hereof shall be cancelled when such final payment,
redemption or
purchase
is made, and such cancelled Bonds shall be delivered to the
Trustee. All cancelled Bonds shall be destroyed by the Trustee by
cremation, shredding or other suitable means, and the Trustee shall execute a
certificate of destruction in duplicate describing the Bonds so destroyed and
one executed certificate shall be filed with the Issuer and the other executed
certificate shall be retained by the Trustee.
Section 2.21
Delivery of
Bonds
. Upon
the execution and delivery of this Bond Agreement, the Issuer shall issue and
execute and deliver the Bonds to the Trustee, and the Trustee shall authenticate
such Bonds and deliver them to the purchaser(s) as may be directed by the
Issuer.
Prior to
the delivery of the Bonds by the Trustee there shall be filed with the
Trustee:
(a)
A
certified copy of the resolution(s) of the Issuer authorizing the issuance of
the Bonds and the execution and delivery of this Bond Agreement;
(b)
An
original executed counterparts of this Bond Agreement; and
(c)
A request
and authorization to the Trustee, executed on behalf of the Issuer by its
Highest Elected Official or Clerk, to deliver the Bonds to the purchaser(s)
therein identified, in the form and amount requested upon payment to the
Trustee, for the account of the Issuer, of a specified sum plus accrued interest
on the Bonds to date of delivery thereof.
Section 2.22
Parity
. This
Bond Agreement is for the equal and ratable benefit and security of all Bonds of
all Series issued and to be issued hereunder. All Bonds of every
Series shall be of equal rank, and no Bondowner shall be accorded a preference
or priority over any other Bondowner except as expressly authorized or provided
herein.
Section 2.23
Discharge
. If
the Issuer shall pay or cause to be paid from the Pledged Revenues the
principal, premium, if any, and interest due or to become due on the Bonds at
the times and in the manner stipulated therein, and if the Issuer shall not then
be in default in any of the covenants and promises in the Bonds and in this Bond
Agreement expressed as to be kept, performed and observed by it or on its part,
and shall pay or cause to be paid to the Trustee all sums of money due or to
become due according to the provisions hereof, then these presents and the
estate and rights hereby granted shall cease, terminate and be void, whereupon
the Trustee shall cancel and discharge the lien of this Bond Agreement and
execute and deliver to the Issuer such instruments in writing as shall be
requisite to cancel and discharge the lien hereof, and reconvey, release, assign
and deliver unto the Issuer any and all the estate, right, title and interest in
and to any and all property conveyed, assigned or pledged to the Trustee or
otherwise subject to the lien of this Bond Agreement, except moneys or
securities held by the Trustee in separate segregated trust accounts pursuant to
this Bond Agreement for the payment of the principal of, premium, if any, and
interest on unpresented Bonds.
Any Bonds
shall be deemed to be paid when payment of the principal of and premium, if any,
on such Bond, plus interest thereon to the due date thereof (whether such due
date be by reason of maturity or upon redemption as provided herein, or
otherwise) either (a) shall have been made or caused to be made in accordance
with the terms hereof, or (b) shall have been provided for by irrevocably
depositing with the Trustee, in trust and irrevocably setting aside exclusively
for such payment, (i) cash, without regard to any investment or reinvestment
thereof, sufficient to make such
payment
or (ii) Defeasance Obligations which are not callable prior to maturity by the
issuer thereof or anyone acting on its behalf maturing as to principal and
interest in such amounts and at such times, without regard to any investment or
reinvestment thereof, as will provide sufficient moneys, together with any
uninvested cash, to make such payment, and all necessary and proper fees and
expenses of the Trustee pertaining to the Bond with respect to which such
deposit is made. At such time as a Bond shall be deemed to be paid
hereunder as aforesaid, it shall no longer be deemed to be outstanding hereunder
and shall no longer be secured by or entitled to the benefits hereof, except for
the purposes of any such payment from such moneys or Defeasance
Obligations.
Notwithstanding
the foregoing, no deposit under clause (b) of the immediately preceding
paragraph shall be deemed a payment of such Bonds as aforesaid
until:
(a)
The
deposit shall have been made under the terms of an escrow trust agreement in
form and substance satisfactory to the Trustee consistent herewith and a
verification report with respect to the sufficiency of such deposit prepared by
an independent certified public accountant shall have been delivered to the
Trustee;
(b)
In the
case of an escrow trust deposit with respect to Bonds subject to redemption
prior to maturity at the option of the Borrower, the Borrowers shall have
delivered an irrevocable Borrower’s Certificate designating when such Bonds are
to be paid or redeemed under terms of such escrow trust agreement;
(c)
In case
of Bonds which are to be redeemed prior to maturity from such escrow trust
deposit, a redemption notice meeting the requirements of Section 2.08 and
stating that such Bonds are being redeemed from a deposit made pursuant to this
Section 2.23 shall either (i) have been given, or (ii) shall have been
provided for by delivery to the Trustee of irrevocable instructions for the
giving of such notice;
(d)
The
Trustee shall have been furnished with an opinion of Bond Counsel to the effect
that the payment of the Bonds in accordance with said escrow trust agreement
will not adversely affect the excludability from gross income of the Bondowners
for federal income tax purposes and will not cause the Bonds to be classified as
“arbitrage bonds” under Section 148 of the Code; and
(e)
The
Trustee shall have covenanted to give notice of such deposit to the Bondowner of
each Bond outstanding at the address shown on the Bond Register.
All
moneys or Defeasance Obligations set aside and held in trust pursuant to the
provisions of this Article for the payment of Bonds (including interest and
premium thereon, if any) shall be applied to and used solely for the payment of
the particular Bonds (including interest and premium thereon, if any) with
respect to which such moneys and Defeasance Obligations have been so set aside
in trust.
If moneys
or Defeasance Obligations have been deposited or set aside with the Trustee
pursuant to this Article for the payment of Bonds and the interest and premium,
if any, thereon and such Bonds and the interest and premium, if any, thereon
shall not have in fact been actually paid in full, no amendment to the
provisions of this Section 2.23 shall be made without the consent of the
Bondowner of each of the Bonds affected thereby.
ARTICLE
III
FUNDS
AND ACCOUNTS
Section 3.01
Application of Proceeds of
Bonds
. The
Trustee shall deposit the amount received by it for the account of the Issuer on
the Original Issue Date into the appropriate Project Fund Account or Project
Fund Accounts established pursuant to Section 3.02.
It is the
intention of the Parties that neither the entire $3,000,000 principal amount of
the Series A Bonds nor the entire $500,000 principal amount of the
Series B Bonds nor the entire $500,000 principal amount of the
Series C Bonds will, in any case, be funded on the Effective
Date. Rather, the Borrowers will submit one or more Borrowers’
Requisitions to the Trustee and the Original Purchaser in accordance with
Section 4.02. The Original Purchaser shall review each such
Borrowers’ Requisition and if, in the Original Purchaser’s absolute discretion,
the Original Purchaser shall approve such Borrowers’ Requisition, the Original
Purchaser shall (i) disburse the amount requested in such Borrowers’
Requisition directly to or on behalf of the Borrowers as specified in the
applicable Borrowers’ Requisition, and (ii) notify the Trustee of such
disbursement, and thereupon the Trustee shall be deemed to have received such
amount from the Original Purchaser in payment of a corresponding amount of the
original purchase price of the Series A Bonds, Series B Bonds or
Series C Bonds, as the case may be, and to have deposited such amount into
the applicable Project Fund Account, and to have contemporaneously disbursed
such amount in payment or reimbursement of Project Costs in accordance with
Section 4.02.
Section 3.02
Project
Fund
. There
is hereby created by the Issuer and ordered established with the Trustee a Trust
Fund to be designated with the title of the Bonds and the label “Project
Fund.” There is hereby created within the Project Fund three accounts
to be designated “Project Fund – Series A Account,” “Project Fund –
Series B Account” and “Project Fund – Series C Account” (said
accounts being hereinafter referred to the “
Project Fund
Accounts
”). The Trustee shall deposit into the Project Fund
Accounts, from time to time when and as received, the amounts specified in
Section 3.01 and any additional moneys which the Borrowers may deliver to
the Trustee from time to time with the instruction that such moneys be deposited
into the Project Fund.
The
Trustee is hereby authorized and directed to disburse moneys from the Project
Fund to pay (or reimburse the Borrowers for) Project Costs. Except as
otherwise provided below, such disbursements shall be made only upon a
Borrower’s Requisition made by or on behalf of the Borrowers meeting the
requirements of and submitted in accordance with
Section 4.02. Notwithstanding the foregoing, there shall never
be disbursed from either the Project Fund – Series A Account or the
Project Fund – Series B Account to pay or reimburse any of the costs
of acquiring and installing the Project Equipment, and there shall never be
disbursed from the Project Fund – Series C Account to pay or reimburse
any of the Project Costs other than the costs of acquiring and installing the
Project Equipment, in each case including a ratable portion of indirect costs
(such as, by way of example and not limitation, Trustee’s fees and the costs of
issuing the Bonds).
In
addition, disbursements from the Project Fund shall be subject to such further
terms and conditions as may be contained in the Credit Agreement and the
Disbursing Agreement (as defined in the Credit Agreement).
If an
Event of Default shall have occurred and be continuing, the Trustee (without any
authorization from the Borrower) may, if the Trustee has accelerated the Bonds
under Section 8.02, apply moneys in the Project Fund in accordance with
Section 8.06.
Upon the
closing of the Project Fund in accordance with Section 4.05, any remaining
balance in the Project Fund shall be transferred to the Bond Fund.
Section 3.03
Bond Fund
. There
is hereby created by the Issuer and ordered established with the Trustee a Trust
Fund to be designated with the title of the Bonds and the label “Bond
Fund.” There is hereby created within the Bond Fund three accounts to
be designated “Bond Fund – Series A Account,” “Bond Fund –
Series B Account” and “Bond Fund – Series C Account” (said
accounts being hereinafter referred to the “
Bond Fund
Accounts
”). The Trustee shall deposit into the Bond Fund
Accounts, from time to time when and as received:
(a)
To the
Bond Fund – Series A Account, all payments from or for the account of the
Borrowers on the Series A Loan pursuant to Section 3.04 (except
prepayments of principal and the premium, if any, thereon required to be
deposited into the Redemption Fund pursuant to Section 4.06);
and
(b)
To the
Bond Fund – Series B Account, all payments from or for the account of the
Borrowers on the Series B Loan pursuant to Section 3.04 (except
prepayments of principal and the premium, if any, thereon required to be
deposited into the Redemption Fund pursuant to Section 4.06);
and
(c)
To the
Bond Fund – Series C Account, all payments from or for the account of the
Borrowers on the Series C Loan pursuant to Section 3.04 (except
prepayments of principal and the premium, if any, thereon required to be
deposited into the Redemption Fund pursuant to Section 4.06);
and
(d)
Moneys
required to be transferred to the Bond Fund from other Trust Funds or from
Pledged Revenues in accordance with this Bond Agreement.
The
Issuer covenants that it will deposit or cause to be deposited into the Bond
Fund, but solely from Pledged Revenues, amounts sufficient to pay when due the
principal of and interest on the Bonds. Except as otherwise expressly
provided herein, moneys in the Bond Fund shall be used solely for the payment of
principal of and interest on the Bonds when due at stated maturity, upon
redemption prior to maturity, upon acceleration of maturity, or otherwise in
accordance with the terms hereof. The Issuer hereby authorizes and
directs the Trustee to withdraw sufficient moneys from the Bond Fund to pay the
Bonds and the interest thereon as the same become due and payable.
Section 3.04
Redemption
Fund
. There
is hereby created by the Issuer and ordered established with the Trustee a Trust
Fund to be designated with the name of the Bonds and the label “Redemption
Fund.” There is hereby created within the Bond Fund three accounts to
be designated “Redemption Fund – Series A Account,” “Redemption Fund –
Series B Account” and “Redemption Fund – Series C Account” (said
accounts being hereinafter referred to the “
Redemption Fund
Accounts
”). The Trustee shall deposit into the Redemption Fund
Accounts, from time to time when and as received:
(a)
To the
Redemption Fund – Series A Account, all prepayments from or for the account
of the Borrowers pursuant to Section 2.05(c) of principal on the
Series A Loan together with the premium, if any, thereon pursuant
to;
(b)
To the
Redemption Fund – Series B Account, all prepayments from or for the account
of the Borrowers pursuant to Section 2.05(c) of principal on the
Series B Loan together with the premium, if any, thereon pursuant
to;
(c)
To the
Redemption Fund – Series C Account, all prepayments from or for the account
of the Borrowers pursuant to Section 2.05(c) of principal on the
Series C Loan together with the premium, if any, thereon pursuant to;
and
(d)
Moneys
required to be transferred to the Redemption Fund from other Trust Funds in
accordance with this Bond Agreement.
The
Issuer hereby authorizes and directs the Trustee to (i) transfer funds from the
Redemption Fund to the Bond Fund when and as required to pay the principal of
any Bonds called for redemption in accordance with this Bond Agreement; (ii)
withdraw funds from the Redemption Fund to pay any premiums payable on Bonds
called for redemption in accordance with this Bond Agreement; and (iii) transfer
funds from the Redemption Fund to the Bond Fund to pay the final payment of
principal on the Bonds at the last maturity thereof. Except to the
extent moneys in the Redemption Fund are needed for the purposes described in
the foregoing clauses (i) and (ii), the Trustee is authorized to use funds
in the Redemption Fund for the purchase of Bonds for cancellation; provided that
such purchases shall be made only to the extent authorized by the Borrowers in a
Borrowers’ Certificate; and provided further that the purchase price for any
Bond so purchased shall not exceed the principal amount thereof plus any accrued
and unpaid interest thereon.
Section 3.05
Insurance and Condemnation
Proceeds Fund
. There
is hereby created by the Issuer and ordered established with the Trustee a Trust
Fund to be designated with the name of the Bonds and the label “Insurance and
Condemnation Proceeds Fund.”
The
Trustee shall deposit into the Insurance and Condemnation Proceeds Fund, when
and as received, the Net Proceeds of title insurance claims, casualty insurance
claims and eminent domain awards in accordance with and to the extent provided
herein.
The
Trustee is hereby authorized and directed to use moneys in the Insurance and
Condemnation Proceeds Fund in accordance with directions from the Borrowers in a
Borrowers’ Certificate, with the Original Purchaser’s consent (subject, however,
to the rights of the Bondowners to require prepayment on the Bonds pursuant to
Section 2.06), for any of a combination of the following
purposes:
(a)
To pay or
reimburse the Borrowers for the costs of repairing, restoring, replacing or
rebuilding any of the Project or Project Equipment damaged or destroyed by fire
or other casualty, provided that such disbursements shall be made only upon a
Borrower’s Requisition substantially in the same form and manner as provided for
disbursements from the Project Fund,
provided
,
however
, that such new
property shall be subject to Mortgage to the satisfaction of the Trustee and the
Original Purchaser;
(b)
To pay or
reimburse the Borrowers for the costs of acquiring or constructing other land
and facilities in the Issuer to replace any property destroyed by fire or other
casualty, taken by eminent domain or lost by reason of title defect, provided
that such disbursements shall be made only upon a Borrower’s Requisition
substantially in the same form and manner as provided for disbursements from the
Project Fund,
provided
,
however
, that such new
property shall be subject to the Mortgage to the satisfaction of the Trustee and
the Original Purchaser; or
(c)
To
transfer to the Redemption Fund if the Borrowers elect to prepay, or the
Bondowners elect to require prepayment of, all of the Loan pursuant to
Section 2.06.
Section 3.06
Rebate Credit Account;
Arbitrage
. There
is hereby created and established a “Rebate Credit Account” which shall be held
by the Trustee and which shall be used solely for the purpose of making payments
in accordance with the requirements of Section 148 of the Code, and
applicable regulations thereunder. On each Computation Date, the
Borrowers shall compute or cause to be computed the amount of rebatable
arbitrage earned by the Issuer during the previous Computation
Period. Computation Dates shall be January 31, 2012 (or such other
date as the Borrowers may elect as permitted by Section 148 of the Code and
applicable regulations) and each fifth anniversary of such date thereafter so
long as any of the Bonds are outstanding after such Computation
Date. The final Computation Date shall be the date the last Bond is
paid for and redeemed. The Computation Period shall be, as of each
Computation Date, the period from the next previous Computation Date (or from
the Original Issue Date, for the first Computation Period).
The
amount computed to be rebatable arbitrage as of each Computation Date (the
“
Rebate Credit
Amount
”) shall be paid by the Borrowers to the Trustee for deposit to the
Rebate Credit Account as of such Computation Date. The Borrowers have
agreed in Section 4.07 to fund the deficiency if the amounts on deposit in
the funds and accounts created by this Bond Agreement are less than the Rebate
Credit Amount. The Trustee is authorized to hire such experts as it deems
necessary to make this calculation, which shall be an expense of the Trustee
paid by the Borrowers under Section 4.07. All earnings from the
reinvestment of any amounts in the Rebate Credit Account shall remain in the
Rebate Credit Account.
Within 60
days of each Computation Date, the Borrowers shall cause the Trustee to pay to
the United States at least 90% of the rebatable arbitrage as of such Computation
Date, and within 60 days of the final Computation Date, the Borrowers shall
cause the Trustee to pay to the United States all of the rebatable arbitrage as
of the final Computation Date and any income attributable to such rebatable
arbitrage;
provided
,
however
, that no such
income shall be included in the final rebate payment if such income is less than
$300. The Trustee shall pay such amounts by check or draft to the
United States; and file a copy of the Form 8038 received from the Borrowers with
respect to the Bonds and a statement summarizing the determination of the amount
required to be paid to the United States with the Internal Revenue Service
Center, Ogden, Utah 84201.
Notwithstanding
anything to the contrary in this Section, rebatable arbitrage shall be
calculated and paid as provided in Section 148(f) of the Code and
applicable regulations thereunder. In the event the Issuer is or the
Borrowers are of the opinion (supported by an opinion of Bond Counsel) that it
is necessary or advisable to restrict or limit the yield on the investment of
any moneys held in any Trust Fund in order to avoid the Bonds being considered
“arbitrage bonds” within the meaning of Section 148(f) of the Code, the
Issuer may (and shall if so requested by the
Borrower)
issue to the Trustee a written certificate to such effect together with
appropriate written instructions, in which event the Trustee shall take such
action as is necessary so to restrict or limit the yield on such investment in
accordance with such certificate and instructions, irrespective of whether the
Trustee shares such opinion.
Section 3.07
Trust
Funds Held in Trust
. All
Trust Funds shall be held in trust in the custody of the Trustee, subject to the
provisions hereof which permit disbursements from the Trust
Funds. All moneys and securities held in Trust Funds, except the
Rebate Credit Account, shall be subject to the first lien of this Bond Agreement
thereon and shall not be subject to lien, attachment, garnishment or other
claims or proceedings by other creditors of the Borrowers or the Issuer (other
than the Original Purchaser and the Trustee for the benefit of the
Bondowners).
Section 3.08
Permitted
Investment of Trust Funds
. Moneys
held in the Trust Funds, upon the direction of the Borrower, shall be separately
invested and reinvested by the Trustee in accordance with this
Article. Each investment shall be held by or under the control of the
Trustee and shall be deemed at all times to be part of the particular Trust Fund
in which such moneys were held. Income, profit and loss from any such
investment shall be credited or charged to the particular Trust Fund for whose
account the investment was made.
All such
investments and reinvestments shall be made in Qualified Investments having a
maturity not later than the estimated time when the moneys so invested will be
needed for the purposes of the Trust Fund of which they are a part.
The
Trustee may make and execute any such investment through its own bond
department, money center or other investment operation or through the bond
department, money center or investment operation of any affiliated
bank.
ARTICLE
IV
TERMS
OF LOANS
Section 4.01
Amount and Source of
Loan
s
.
(a)
Series A
Loan
. The Issuer will lend to the Borrowers and the Borrowers
will borrow from the Issuer, upon the terms and conditions specified herein, the
amount (not to exceed $3,000,000) of Proceeds received by the Issuer from the
sale of the Series A Bonds by causing such Bond Proceeds to be
credited to the Project Fund – Series A Account under
Section 3.01 for disbursement in accordance with Section 4.02 (the
“Series A Loan”). The Issuer shall be obligated to lend only
moneys transferred to the Trustee from the Original Purchaser for deposit in the
Project Fund – Series A Account as evidenced by the Original
Purchaser’s approval of a Borrower’s Requisition in the form set forth in
Exhibit D. The outstanding principal amount of the Series A
Loan shall at all times be in balance with the principal amount of the
Series A Bonds Outstanding.
(b)
Series B
Loan
. The Issuer will lend to the Borrowers and the Borrowers
will borrow from the Issuer, upon the terms and conditions specified herein, the
amount (not to exceed $500,000) of Proceeds received by the Issuer from the sale
of the Series B Bonds by causing such Proceeds to be credited to the
Project Fund – Series B Account under Section 3.01 for
disbursement in accordance with Section 4.02 (the “
Series B
Loan
”). The Issuer shall be obligated to lend only
moneys
transferred to the Trustee from the Original Purchaser for deposit in the
Project Fund – Series B Account as evidenced by the Original
Purchaser’s approval of a Borrower’s Requisition in the form set forth in
Exhibit D
. The
outstanding principal amount of the Series B Loan shall at all times be in
balance with the principal amount of the Series B Bonds
Outstanding.
(c)
Series C
Loan
. The Issuer will lend to the Borrowers and the Borrowers
will borrow from the Issuer, upon the terms and conditions specified herein, the
amount (not to exceed $500,000) of Proceeds received by the Issuer from the sale
of the Series C Bonds by causing such Proceeds to be credited to the
Project Fund – Series C Account under Section 3.01 for
disbursement in accordance with Section 4.02 (the “
Series C
Loan
”). The Issuer shall be obligated to lend only moneys
transferred to the Trustee from the Original Purchaser for deposit in the
Project Fund – Series C Account as evidenced by the Original
Purchaser’s approval of a Borrower’s Requisition in the form set forth in
Exhibit D
. The
outstanding principal amount of the Series C Loan shall at all times be in
balance with the principal amount of the Series B Bonds
Outstanding.
Section 4.02
Withdrawals from the Project
Fund
. Subject
to and as limited by Section 3.02, the Issuer has authorized and directed
the Trustee to disburse money from the Project Fund in payment or reimbursement
of Project Costs certified by the Borrower, or otherwise satisfactorily
established, to be due and payable or to have been paid or incurred by or on
behalf of the Borrower. The Trustee shall not disburse any funds from
the Project Fund except upon receipt of a Borrower’s Requisition in the form
attached hereto as
Exhibit D
,
approved and funded by the Original Purchaser.
In
addition, the Borrowers recognize the right of the Trustee or the Original
Purchaser to require additional documentation regarding the progress of the
Project, absence of liens, percentage of completion, incurrence of costs and
similar matters prior to disbursing moneys from the Project Fund, where deemed
reasonably necessary. Such documents may include without
limitation:
(a)
Evidence
(which may be in the form of acknowledgments of governmental authorities having
jurisdiction over the Project, or of public utilities) that all off-site and
on-site utilities, including without limitation those for electricity, natural
gas, water and sewage, are available to the Project;
(b)
Copies of
licenses, permits and all certificates required by any governmental authority in
connection with the construction of the Project; and
(c)
If
requested by the Trustee, a statement by the Borrowers and any subcontractor as
to its subcontract, in form and in substance satisfactory to the Trustee,
setting forth the names, addresses and amounts due or to become due, the amounts
previously paid to every subcontractor, person, firm or corporation furnishing
materials or performing labor entering into the construction of any part of the
Project and lien waivers duly executed in a form acceptable to the Trustee,
delivered before or contemporaneously with the Trustee’s disbursement of Bond
proceeds.
(d)
The
Borrowers hereby acknowledge and agree that the approval required of the
Original Purchaser to funding transfers, as provided in Sections 3.01,
3.02, 4.01 and this Section 4.02, and as provided in
Exhibit D
(Form
of Borrower’s Requisition), shall be solely within the Original Purchaser’s
absolute discretion, provided that such approval shall not be unreasonably
withheld.
Section 4.03
Establishment of Completion
Date
. The
Completion Date shall be the date on which the Trustee shall acknowledge receipt
of the following items, which the Borrowers shall furnish to the Trustee with
respect to the Project:
(a)
A
certificate signed by the Borrowers or an independent architect stating, or
other satisfactory evidence establishing, that the construction, acquisition,
purchase, improving, equipping, furnishing or installation of the Project has
been completed, but that the certificate is given without prejudice to any
rights against third parties which exist at the date thereof or which may
subsequently come into being;
(b)
A
certificate signed by the Borrowers stating, or other satisfactory evidence
establishing, that the entire Project Costs have been paid or are then due and
payable pursuant to Section 4.02; and
(c)
If
necessary, a certificate of occupancy for the Project issued by the governmental
authority having jurisdiction.
Section 4.04
Completion
Date
. The
Project will be completed within 36 months of the Original Issue Date, and all
amounts in the Project Fund will be expended within 36 months of the Original
Issue Date.
Section 4.05
Distribution of Project Fund
on Completion Date
. On
the Completion Date, any balance remaining in the Project Fund shall be
disbursed by the Trustee to or for the benefit of the Borrowers or on their
order in such amount as may be necessary (and all thereof shall be disbursed if
necessary) to pay, or to reimburse the Borrowers for the payment of, any Project
Costs which have not been paid previously by the Borrowers or have not been
reimbursed to the Borrower, as the case may be, in accordance with the
provisions of Section 4.02. Any balance then remaining in the
Project Fund in excess of amounts, if any, disbursed as provided above, shall be
transferred to the Bond Fund and shall be used to pay principal and interest on
the Bonds as same shall become due and payable within ninety (90) days of the
Completion Date.
Section 4.06
Repayment of
Loan
. The
Borrowers will pay to the Trustee at the Trustee’s Principal Office for the
account of the Issuer, and for deposit in the Bond Fund, in immediately
available funds on each Payment Date, the exact amount of interest and principal
payable on that Payment Date. This provision shall be construed so
that the obligation of the Borrowers shall never be greater than to have on
deposit in the Bond Fund on any Payment Date the exact amount of principal and
interest due on the Bonds on that Payment Date (except for the amount of
additional payments required by Section 2.04 and Section 4.07 and
amounts necessary to provide for the mandatory redemption of Bonds at the time
and in the manner provided herein). In the event the Borrowers should
fail to make any of the payments required in this Section 4.06, the item so
in default shall continue as an obligation of the Borrowers until the amount in
default shall have been fully paid, and the Borrowers agree to pay such amount
with interest thereon (including, to the extent permitted by law, interest on
the overdue installments of interest) at the Default Rate on those Bonds as to
which such default exists.
Section 4.07
Additional
Payments
. The
Borrowers will also pay the following amounts to the following
persons:
(a)
To the
Trustee, when due, all fees of the Trustee for services rendered hereunder and
all reasonable fees and charges of counsel, accountants, engineers, consultants
and others incurred in the performance on request of the Trustee of any and all
services hereunder and under the No Arbitrage Certificate for which the Trustee
and such other persons are entitled to payment or reimbursement;
and
(b)
To the
Trustee, for deposit into the Rebate Credit Account, the amount needed to be
paid to comply with Section 148 of the Code and
Section 3.06.
Section 4.08
Borrowers’ Obligations
Unconditional
. The
Borrowers’ obligations under Section 4.06 shall be in the nature of a Loan
and shall be evidenced by a Promissory Note in the form set forth in
Exhibit C
attached hereto. All payments required of the Borrowers hereunder
shall be paid without notice or demand and without set-off, counterclaim,
abatement, deduction or defense. Except as expressly provided herein,
the Borrowers will not suspend or discontinue any Loan Repayments, will perform
and observe all of its other agreements in this Bond Agreement, and will not
terminate this Bond Agreement for any cause, including but not limited to any
acts or circumstances that may constitute failure of consideration, destruction
of or damage to the Project, eviction by paramount title, commercial frustration
of purpose, bankruptcy or insolvency of the Issuer, the Trustee or the Original
Purchaser, change in the tax or other laws or administrative rulings or actions
of the United States of America or of the State of Wisconsin or any political
subdivision thereof or failure of the Issuer to perform and observe any
agreement, whether express or implied, or any duty, liability or obligation
arising out of or connected with this Bond Agreement.
Section 4.09
Credit for Accrued Interest
and Investment Earnings on Bond Fund
. The
accrued interest, if any, deposited in the Bond Fund pursuant to
Section 3.01 shall be credited against the first payment of interest due
hereunder. Any earnings from the investments of Bond Fund balances
shall be applied to the payment of interest on the Bonds and credited against
payments of interest hereunder at the earliest opportunity.
Section 4.10
Prepayment of
Loan
. Subject
to the provisions of Section 2.05 and Section 2.07, the Borrowers may
at any time transmit funds directly to the Trustee, for deposit in the
Redemption Fund, in addition to amounts, if any, otherwise required at that time
pursuant to this Bond Agreement, and direct that the money be utilized by the
Trustee to:
(a)
Provide
for the payment of Bonds prior to their maturity dates, as provided in
Section 2.05; or
(b)
Purchase
Bonds, in accordance with the provisions of Section 2.07, which Bonds shall
be cancelled by the Trustee.
Section 4.11
Other
Security
. In
addition to the revenues set forth in this Bond Agreement out of which the Bonds
shall be payable, the Bonds shall be secured as otherwise described herein and
in the Security Documents.
Section 4.12
Nature of Borrowers’
Obligations
. The
Borrowers’ obligations hereunder include any payments required hereunder or
under any of the Security Documents
(including
the disbursement of Bond proceeds and the return of any deposits or other
collateral) from the Original Purchaser to the Borrower.
Section 4.13
Fees and Expenses of
Issuer
. The
Borrowers covenant and agree to pay to or on behalf of the Issuer the reasonable
fees and expenses, including reasonable attorneys’ fees, of the Issuer in
connection with this Bond Agreement, the Project or the Bonds including, without
limitation, any and all fees and expenses incurred in connection with the
authorization, issuance, sale and delivery of the Bonds and administration of
the Bonds.
ARTICLE
V
ISSUER’S
REPRESENTATIONS AND COVENANTS
Section 5.01
Payment of Principal and
Interest
. The
Issuer covenants that it will promptly pay or cause to be paid, the principal
of, and interest and premium, if any, on every Bond issued hereunder at the
place, on the dates and in the manner and solely from the source provided herein
and in the Bonds, according to the terms thereof. Notwithstanding the
foregoing, the principal of, premium, if any, and interest on the Bonds are
payable solely from the Pledged Revenues, which Pledged Revenues are hereby
specifically assigned and pledged to the payment thereof in the manner and to
the extent herein specified and from funds provided by the Borrowers as provided
herein.
Section 5.02
Performance of and Authority
for Covenants
. The
Issuer covenants that it will faithfully perform at all times any and all
covenants, undertakings, stipulations and provisions contained herein, in any
and every Bond executed, authenticated and delivered hereunder and in all
proceedings of its governing body pertaining thereto, and it is duly authorized
under the Constitution and laws of the State of Wisconsin to issue the Bonds
authorized hereby, to make a loan for the purpose of financing Project Costs,
and to assign and pledge the Pledged Revenues, in the manner and to the extent
herein set forth; and that all action on its part for the issuance of the Bonds
and the execution and delivery of this Bond Agreement has been duly and
effectively taken.
Section 5.03
Right to Payments;
Instruments of Further Assurance
. The
Issuer covenants that it will defend against the claims and demands of all
persons whomsoever its right to the payment of amounts due from the Borrowers
under this Bond Agreement and the Promissory Note, for the benefit of the
Bondowners. The Issuer covenants that it will do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and
delivered, such indentures supplemental hereto and such further acts,
instruments and transfers as the Trustee may reasonably require for the better
assuring, transferring, conveying, pledging, assigning and confirming unto the
Trustee all and singular the rights assigned hereby and the amounts pledged
hereby to the payment of the principal of, premium, if any, and interest on the
Bonds. The Issuer covenants and agrees that, except as herein
provided, it will not sell, convey, mortgage, encumber or otherwise dispose of
any part of the revenues and receipts from this Bond Agreement and the
Promissory Note nor its rights under this Bond Agreement and the Promissory
Note.
Section 5.04
Title to
Project
. The
Issuer acknowledges that, as between the Issuer and the Borrowers neither the
Issuer nor the Trustee shall be entitled to or have any security
interest
in or lien upon the Project or the Borrowers’ title to and interest in the
Project other than pursuant to the Security Documents.
Section 5.05
Cooperation of the Issuer
and Trustee
. So
long as no Event of Default has occurred and is continuing and subject to the
provisions in the Security Documents, the Issuer and Trustee will cooperate
fully with the Borrowers in filing any proof of loss with respect to any
insurance policy covering casualties referred to in Section 6.06 and in the
handling and conduct of any litigation arising with respect thereto, and will,
to the extent they may lawfully do so, permit the Borrowers to litigate in any
such litigation or proceeding in the name and on behalf of the Trustee, provided
that the Issuer will not be required to prosecute any such
litigation. So long as no Event of Default has occurred and is
continuing, the Trustee will cooperate fully with the Borrowers in the handling
and conduct of any prospective or pending condemnation proceedings affecting the
Project, and will, to the extent it may lawfully do so, permit the Borrowers to
litigate in any such litigation or proceeding in the name and on behalf of the
Trustee. So long as no Event of Default has occurred and is
continuing, in no event will the Issuer or Trustee voluntarily settle or consent
to the settlement of any proceeding arising out of any insurance claim, or any
prospective or pending condemnation proceeding, with respect to the Project
without the written consent of the Borrower, which consent shall not be
unreasonably withheld.
Section 5.06
Performance by
Issuer
. Notwithstanding
anything in this Agreement to the contrary, the Issuer shall be under no
obligation to take any action or execute, prepare or deliver any instrument or
document until it shall have received assurances satisfactory to it that the
Borrowers or the Trustee shall pay in advance or reimburse it (at the Issuer’s
option) for its reasonable expenses incurred or to be incurred in connection
with the taking of such action, (including reasonable attorneys’ fee) and shall
be indemnified against any possible liability arising out of the taking of such
action.
ARTICLE
VI
BORROWERS’
REPRESENTATIONS AND COVENANTS
Section 6.01
Representations by the
Borrower
s
Individually
(a)
M &
W
. Except as otherwise stated herein, M & W makes the
following representations as the basis for its covenants herein:
(i)
M & W
is a duly organized and validly existing Wisconsin limited liability company
and: (i) no filing has been made with the Wisconsin Department of Financial
Institutions of Articles of Dissolution with respect to M & W,
(ii) the members of M & W have not taken any action
authorizing the liquidation or dissolution of M & W,
(iii) M & W has filed with the Wisconsin Department of
Financial Institutions the required annual report for its most recently
completed report year , and (iv) M & W is not the subject of
a proceeding under Wisconsin Statutes Section 183.09025 to cause its
dissolution, and no determination has been made that grounds exist for such
action.
(ii)
M & W
is authorized to execute, deliver and perform its obligations hereunder and to
execute, deliver, file or record this Bond Agreement, the Promissory Note,
the
Security Documents and such other papers, document or instruments as shall be
necessary to carry out the intention and purpose hereof.
(iii)
The
execution and delivery of this Bond Agreement, the Promissory Note and the
Security Documents, the consummation of the transactions contemplated by such
instruments, and the fulfillment of the terms and conditions of such instruments
do not and will not conflict with or result in a breach of any of the terms or
conditions of the M & W Organizational Documents, or any mortgage,
indenture, loan agreement or other restriction or of any agreement or instrument
to which M & W is now a party or to which any property of M & W is
subject, and do not and will not constitute a default under any of the foregoing
or result in the creation or imposition of any lien, charge or encumbrance of
any nature upon any of the property or assets of M & W contrary to the terms
of any instrument or agreement to which M & W is a party or by which any of
its property or assets is bound.
(iv)
This Bond
Agreement constitutes the legal, valid and binding obligation of
M & W, enforceable in accordance with its terms, except as the
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, conservatorship, receivership or similar laws affecting
the enforcement of creditors' rights generally and general equitable
principles.
(b)
Advanced
. Except
as otherwise stated herein, Advanced makes the following representations as the
basis for its covenants herein:
(i)
Advanced
is a corporation validly existing under the laws of the State of Wisconsin and:
(i) no filing has been made with the Wisconsin Department of Financial
Institutions of Articles of Dissolution or a decree of dissolution with respect
to Advanced, (ii) the Board of Directors of Advanced has not taken any
action authorizing the liquidation or dissolution of Advanced,
(iii) Advanced has filed with the Wisconsin Department of Financial
Institutions the required annual report for its most recently completed report
year, nd (iv) Advanced is not the subject of a proceeding under
Wisconsin Statutes Section 181.1421 to cause its dissolution, and no
determination has been made that grounds exist for such action.
(ii)
The
execution and delivery of this Bond Agreement, the Promissory Note and the
Security Documents, the consummation of the transactions contemplated by such
instruments, and the fulfillment of the terms and conditions of such instruments
do not and will not conflict with or result in a breach of any of the terms or
conditions of the Advanced Organizational Documents, or any mortgage, indenture,
loan agreement or other restriction or of any agreement or instrument to which
Advanced is now a party or to which any property of Advanced is subject, and do
not and will not constitute a default under any of the foregoing or result in
the creation or imposition of any lien, charge or encumbrance of any nature upon
any of the property or assets of Advanced contrary to the terms of any
instrument or agreement to which Advanced is a party or by which any of its
property or assets is bound.
(iii)
This Bond
Agreement constitutes the legal, valid and binding obligation of Advanced,
enforceable in accordance with its terms, except as the
enforceability
may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
conservatorship, receivership or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles.
(c)
Mancls
. Except
as otherwise stated herein, the Mancls, individually and jointly and severally
make the following representations as the basis for their covenants
herein:
(i)
Each of
them is an adult resident of the State of Wisconsin and they are married to each
other.
(ii)
This Bond
Agreement and the obligations evidenced or contemplated hereby are being
incurred in the interest of their marriage or family and each consents to the
incurrence of such obligations by the other and each of them acknowledges that
they have received adequate consideration for the incurrence of such
obligations.
(iii)
The execution and
delivery of this Bond Agreement and the Promissory Note, the consummation of the
transactions contemplated by such instruments, and the fulfillment of the terms
and conditions of such instruments do not and will not conflict with or result
in a breach of any of the terms or conditions of any mortgage, indenture, loan
agreement or other restriction or of any agreement or instrument to which either
or both of them is now a party (including any martial property or
similar agreement) or to which the property of either or both of them is
subject, and do not and will not constitute a default under any of the foregoing
or result in the creation or imposition of any lien, charge or encumbrance of
any nature upon any of the property or assets of either or both of them contrary
to the terms of any instrument or agreement to which either or both of them is a
party or by which any of his, her or their property or assets is
bound.
(iv)
This Bond
Agreement constitutes the legal, valid and binding obligation of each of them,
individually, enforceable in accordance with its terms, except as the
enforceability may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, conservatorship, receivership or similar laws affecting
the enforcement of creditors' rights generally and general equitable
principles.
(v)
Neither
of them has been adjudged an incompetent or spendthrift and neither of them is
the subject of any guardianship nor is any such guardianship or similar
proceeding pending or threatened.
(vi)
Neither
of them has entered into this Bond Agreement or the transactions contemplated
under duress, threat or coercion of any kind or nature.
Section 6.02
Representations by the
Borrowers Collectively
. Except
as otherwise stated herein, the Borrowers, individually, collectively and
jointly and severally make the following representations as the basis for their
covenants herein:
(a)
The
assistance in the financing of the Project by the Issuer has been and is a
substantial inducement to the Borrowers to undertake the Project.
(b)
The Bond
Proceeds to be credited to the Project Fund in accordance with Section 3.02
are estimated, on the date hereof, to be sufficient, with other amounts to be
provided by the Borrowers, to pay Project Costs.
(c)
The
Borrowers are not relying on any warranty of the Issuer, the Trustee or the
Original Purchaser either express or implied, that the Project will be suitable
to the Borrowers’ needs.
(d)
There is
not pending any suit, action or proceeding against or affecting any Borrower
before or by any court, arbitrator, administrative agency or other governmental
authority which materially and adversely affects the validity, as to such
Borrower, of any of the transactions contemplated by this Bond Agreement or the
ability of any Borrower to perform its or their obligations hereunder or as
contemplated hereby.
(e)
The
Project as designed and proposed to be operated meets, on the date hereof, all
material requirements of law, including requirements of any federal, state,
county, city or other governmental authority having jurisdiction over the
Borrowers, the Project or its use and operation, including, without limitation,
any zoning, land use or similar laws and regulations.
(f)
As of the
date hereof, the Borrowers have obtained or will obtain, as required throughout
the construction, equipping and operation of the Project, all necessary
approvals, whether legal or administrative, from all applicable federal, state
or local entities or agencies required, for the purchase, construction,
equipping and operation of the Project.
(g)
The
businesses of the Borrowers has been operated in full compliance with all
Environmental Laws, the Borrowers are not subject to any Environmental Liability
relating to the conduct of its business and no facts or circumstances exist
which could give rise to such Environmental Liabilities. No notice
has been served on the Borrowers claiming any violation of Environmental Laws,
asserting Environmental Liability or demanding payment or contribution for
Environmental Liability or violation of Environmental Laws.
Section 6.03
Completion of Project by the
Borrower
s
. The
Borrowers have completed, or will complete the Project as promptly as
practicable in material accordance with the budget set forth in the Tax
Certificate.
Section 6.04
Payment of Project Costs by
the Borrower
. The
Borrowers agree that they will provide promptly any and all sums of money
required to complete the Project, including without limitation all of the
Project Costs, which the Issuer agrees shall be payable or reimbursable to the
extent and in the manner provided in Section 4.02.
Section 6.05
Sums for
Completion
. The
Issuer, the Trustee and the Original Purchaser make no representation or
warranty, express or implied, that the moneys on deposit in the Project Fund
will be sufficient to pay the entire Project Costs. If the Project
Fund is not sufficient to pay the entire Project Costs, the Borrowers shall
nonetheless complete the construction, equipping, improving and installation of
the Project and pay all costs incurred therefor without further
reimbursement. No payments by the Borrowers under this
Section 6.05 shall reduce the obligations of the Borrowers or offset any
other payment required to be made by the Borrowers hereunder.
Section 6.06
Borrowers to Repair,
Replace, Rebuild or Restore
. If
there are any Outstanding Bonds when all or any part of the Project is taken by
eminent domain, or destroyed or damaged, and unless the Borrowers or the
Bondowners exercise their independent options to direct the redemption of any or
all Outstanding Bonds pursuant to Section 2.05, the following subsections
shall apply:
(a)
The
Borrowers shall proceed promptly, subject to the provisions of
subsection (b) of this Section 6.06, to replace, repair, rebuild and
restore the Project to substantially the same condition as existed before the
taking or event causing the damage or destruction, with such changes,
alterations and modifications (including substitution or addition of other
property) as may be desired by the Borrowers and will be suitable for continued
operation of the Project for the business purposes of the Borrower, and the
Borrowers will pay all costs thereof.
(b)
If the
condemnation award or insurance claim is less than $5,000, the Trustee shall pay
the Net Proceeds to the Borrower. If the condemnation award or
insurance claim exceeds $5,000, all Net Proceeds of the condemnation award or
insurance claim shall be retained by the Trustee and deposited in the Insurance
and Condemnation Proceeds Fund. The Trustee shall apply the Net
Proceeds in compliance with Section 3.05. If the Net Proceeds
are not sufficient to pay such costs in full, the Borrowers shall pay that
portion of the cost in excess of the amount of the Net Proceeds and shall
complete such repair, replacement, rebuilding or restoration.
(c)
The
Borrowers shall not, by reason of the payment of any costs of repair,
rebuilding, replacement or restoration, be entitled to any reimbursement from
the Issuer or any abatement or diminution of the amounts payable
hereunder. Any balance of Net Proceeds remaining in the Insurance and
Condemnation Proceeds Fund after payment of all costs of any repair, rebuilding,
replacement or restoration and after completion of the same shall be paid into
the Bond Fund and used to redeem Bonds pursuant to Section 2.05 or, if
there are no Outstanding Bonds, to the Borrower.
(d)
All
buildings, improvements and equipment acquired in the repair, rebuilding,
replacement or restoration of the Project, together with any interests in land
acquired by the Borrowers necessary for such restoration, shall be deemed a part
of the Project and available for use and occupancy by the Borrowers without the
payment of any additional amounts other than those provided herein, and shall be
made subject to the Mortgage provided that no land, interest in land, buildings
or improvements shall be acquired subject to any lien or
encumbrance.
(e)
The Net
Proceeds of any (i) insurance attributable to damage or destruction separately
incurred by property of a Borrower not comprising part of the Project, (ii)
condemnation award separately awarded for damages to or taking of the
property of the Borrowers not comprising part of the Project, or for damages on
account of the taking of or interference with the Borrowers’ rights to
possession, use or occupancy of any property of the Borrowers not constituting
the Project, or (iii) title insurance insuring title to land not comprising part
of the Project, shall be and remain at all times the property of the Borrower,
subject to such other agreements as the Borrowers may have in place with the
Original Purchaser or other creditors.
Section 6.07
Maintenance of Property;
Insurance
. The
Borrowers shall:
(a)
Keep all
Property useful and necessary in their respective businesses, whether leased or
owned, in all material respects in good condition, repair and working order
(ordinary wear and tear excepted) and from time to time make or cause to be made
all needed and proper repairs, renewals, replacements, additions and
improvements so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
(b)
Maintain
with good, reputable and financially sound insurance underwriters insurance of
such nature and in such amounts as is customarily maintained by companies
engaged in the same or similar business and such other insurance as may be
required by law or as may be required in the Security Documents.
(c)
Have the
Trustee named as an additional insured.
Section 6.08
Compliance with Zoning
Laws
. The
use of the Project shall at all times be and continue to be in full compliance
with all applicable zoning laws and ordinances. The Borrowers shall
not initiate or acquiesce in any zoning reclassification, or seek any
conditional use permit or variance without the written consent of the Issuer and
the Original Purchaser while it remains a Bondowner.
Section 6.09
Indemnification
. The
Borrowers agree to indemnify and save harmless the Issuer, the Original
Purchaser and the Trustee and each of their respective officers, agents and
employees from and against any and all losses, damages, costs, charges, expenses
(including attorney’s fees), causes of action, suits, claims, demands, judgments
and liabilities arising from:
(a)
Any
injury to or death of any person or damage to property in or upon the Project or
growing out of or connected with the use, nonuse, condition or occupancy of the
Project;
(b)
Violation
of any agreement or condition of this Bond Agreement, except those knowingly
violated by the Issuer;
(c)
Violation
of any contract, agreement or restriction by any Borrower relating to the
Project which shall have existed at the commencement of the term of this Bond
Agreement;
(d)
Violation
of any law, ordinance or regulation by any Borrower affecting the Project or a
part thereof or the ownership, occupancy or use of the Project;
(e)
Any
statement or information relating to the expenditure of the Bond Proceeds
contained in the “Arbitrage Certificate” or similar document furnished by any
Borrower to the Issuer, the Original Purchaser or the Trustee which, at the time
made, is misleading, untrue or incorrect in any material respect;
(f)
Any audit
or investigation of the Bonds by the Internal Revenue Service or the United
States Department of the Treasury;
(g)
Any
statement or information furnished to the Original Purchaser of the Bonds by any
Borrower;
(h)
Any
liability arising under any applicable federal, state or local environmental law
relating to the Project or the Bonds, not resulting from the negligence or
willful misconduct of the Issuer or the Trustee; and
(i)
Any other
event or circumstance relating to the Project or the Bonds not described above
not resulting from the negligence or willful misconduct of such indemnified
party.
The
obligations of the Borrowers under this Section 6.09 shall survive any
assignment or termination of the Bond Agreement.
Section 6.10
Assurance of
Tax-exemption
. In
order to assure that the interest on the Bonds shall at all times be free from
Federal income taxation, the Borrowers covenant with the Issuer, the Trustee and
all Bondowners that they will:
(a)
Not use
the proceeds of the Bonds in such a manner as to cause the Bonds to be
classified “arbitrage bonds” under Section 148 of the Code and applicable
regulations.
(b)
Comply
with and fulfill all other requirements and conditions of the Code and
regulations and rulings relating to the Project and not take any action, or
refrain from taking any action, or permit others to take any action or refrain
from taking any action if the result thereof would be to cause the interest on
the Bonds to be included in the gross income of a Bondowner.
Section 6.11
Legal Existence; Compliance
with Laws; Maintenance of Business; Taxes
. Each
of Advanced and M &W shall maintain its legal existence as a
corporation and limited liability company, respectively, and will not dissolve
or otherwise dispose of all or substantially all its assets or consolidate with
or merge into another legal entity or permit one or more other legal entities to
consolidate with or merge into it, except that Advanced and M & W may,
without violating the foregoing, consolidate with or merge into each other or
into any other legal entity, or permit one more other legal entities to
consolidate with or merge into it, or transfer all or substantially all its
assets to another such legal entity (and thereafter be released of all further
obligation under this Agreement and dissolve or not dissolve as such Borrower
may elect) if (i) the resulting, surviving or transferee legal entity, as
the case may be, is a legal entity established and duly existing under the laws
of one of the states of the United States of America; (ii) such resulting,
surviving or transferee legal entity expressly assumes in writing all of the
obligations of such Borrower contained in this Bond Agreement and the Security
Documents; (iii) the Original Purchaser while it remains a Bondowner shall
have consented in writing to such transaction, which consent shall not be
unreasonably withheld; and (iv) the resulting, surviving or transferee
entity shall have a net assets immediately following such transaction at least
equal to or greater than that of such Borrower immediately prior to such
transaction.
Section 6.12
Financial
Statements
. The
Borrowers shall maintain a standard and modern system of accounting in
accordance with sound accounting practice, and furnish to the Original Purchaser
such information respecting the business, assets and financial condition of such
Borrowers as the Issuer may reasonably request and, without request furnish to
the Original Purchaser the following financial statements on or prior to the
dates indicated below:
(a)
as soon
as available, and in any event within 120 days after the filing thereof, the
Borrowers shall provide the Original Purchaser a copy of the tax return for each
fiscal year of the Borrower;
(b)
as soon
as available, and in any event within 120 days after the end of each fiscal
year, consolidated and consolidating financial statements for the Borrowers for
each fiscal year, prepared in accordance with GAAP, and compiled by independent
accountants acceptable to the Original Purchaser;
(c)
as soon
as available, and in any event within 60 days after the end of each fiscal
quarter, consolidated and consolidating financial statements for the Borrowers
for each fiscal quarter, prepared in accordance with GAAP, all in reasonable
detail and certified as true and correct, subject to review and normal year end
adjustments, by the chief financial officer of Borrower; and
(d)
promptly
upon learning of the occurrence of any of the following, written notice thereof
to the Original Purchaser, describing the same and the steps being taken with
respect thereto: (i) the occurrence of any Default, (ii) the
institution of, or any materially adverse determination or development in, any
material litigation, arbitration proceeding or governmental proceeding,
(iii) the occurrence of a “reportable event” under, or the institution of
steps by the Borrowers to withdraw from, or the institution of any steps to
terminate, any Employer Plan as to which the Borrowers may have liability,
(iv) the commencement of any dispute with a third party which might lead to
the modification, transfer, revocation, suspension or termination of this
Agreement or any Related Document, or (v) any event which would have a
Material Adverse Effect.
Section 6.13
Environmental
Compliance
. The
Borrowers shall:
(a)
Maintain
at all times all permits, licenses and other authorizations required under
Environmental Laws, and comply in all material respects with all terms and
conditions of the required permits, licenses and authorizations and all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental
Laws.
(b)
Notify
the Issuer and the Original Purchaser promptly upon obtaining knowledge that (i)
any Property previously or presently owned or operated is the subject of an
environmental investigation by any Government Authority having jurisdiction over
the enforcement of Environmental Laws, (ii) any Borrower or any of its
respective Subsidiaries has been or may be named as a responsible party subject
to Environmental Liability, or (iii) any Borrower obtains knowledge of any
Hazardous Substance located on any Property except in compliance with all
Requirements of Law.
(c)
At any
reasonable time following reasonable notice and as often as may be reasonably
desired after any Borrower becomes aware of an environmental problem, permit the
Issuer and/or the Original Purchaser or an independent consultant selected by
the Issuer and/or the Original Purchaser to conduct an environmental audit
satisfactory to the Issuer and/or the Original Purchaser for the purpose of
determining whether the Borrowers, each Subsidiary, any tenant, and their
Property comply with Environmental Laws and whether there exists any condition
or circumstance which may require a cleanup, removal or other remedial action by
a Borrower, a Subsidiary or a tenant with respect to any Hazardous
Substance. The Borrowers and their respective
Subsidiaries
shall facilitate such environmental audit. The Issuer and/or the
Original Purchaser shall provide the Borrower, at the Borrowers’ request, with
all reports and findings but the Borrowers may not rely on such environmental
audit for any purpose. Any such environmental audit of Property shall
be at Borrowers’ expense at any time following an Event of Default or upon the
occurrence of an event described in Section 6.13(b) or at any time the
Property is the subject of an environmental investigation by a Government
Authority having jurisdiction over the enforcement of Environmental Laws;
provided
,
however
, that the Issuer’s
and/or the Original Purchaser’s environmental audit shall not be at the
Borrowers’ expense if (i) a Government Authority or a firm or firms of
geotechnical engineers and/or environmental consultants hired by the Borrowers
and reasonably acceptable to the Issuer and/or the Original Purchaser shall
undertake to make an environmental audit, and (ii) the Borrowers shall provide
the Issuer and the Original Purchaser at the Borrowers’ expense with, and the
Issuer and the Original Purchaser shall be entitled to rely on, all reports and
findings of such Government Authority or geotechnical engineers as soon as such
reports and findings are made available to the Borrower.
Notwithstanding
the foregoing, nothing contained in this Bond Agreement, or in the Loan
Documents, or in the enforcement of this Bond Agreement or the Loan Documents,
shall constitute or be construed as granting or providing the right, power or
capacity to the Issuer or the Original Purchaser to exercise (a) decision-making
control of the Borrowers’, any Subsidiary’s or any tenant’s compliance with any
Environmental Law, or (b) day-to-day decision making of the Borrower, any
Subsidiary or any tenant with respect to (i) compliance with Environmental Laws
or (ii) all or substantially all of the operational aspects of the Borrower, any
Subsidiary or any tenant.
Section 6.14
Certain Financial
Covenants
.
The
Borrowers shall observe the financial covenants contained in the Credit
Agreement.
Notwithstanding
any provision of ARTICLE X or any other provision of the Bond Agreement to
the contrary, the provisions of this Section 6.14 may, so long as the
Original Purchaser is the holder of record of all (100%) in principal amount of
the Bonds then Outstanding, be amended and further amended from time to time to
add, delete or modify any financial covenant set forth herein by a written
instrument executed by the Borrowers and the Original Purchaser. No
prior notice to or consent of the Issuer or the Trustee shall be required to
effect an amendment to this Section 6.14; however, the Borrowers shall file
with the Trustee the written instrument, signed by the Borrowers and the
Original Purchaser, within 30 days of the effective date of any such
amendment.
Section 6.15
Operating Funds and
Accounts.
The Borrowers shall maintain its primary operating account with the Original
Purchaser and shall maintain all bank deposits and accounts, in accounts with
either the Original Purchaser or the Participant.
Section 6.16
Inspection of Property and
Records
. At
any reasonable time following reasonable notice, as often as may be reasonably
desired and at the Borrowers’ expense after an Event of Default which is
continuing, each Borrower shall permit representatives of the Issuer, the
Trustee, and the Original Purchaser to visit its respective Property, examine
its respective books and records and discuss its respective affairs, finances
and accounts with its members or officers and independent certified public
accountants (who shall be instructed by such Borrower to make available to the
Issuer, the Trustee, and the Original Purchaser or their agents the work papers
of such accountants) and each Borrower shall facilitate such inspection and
examination.
Section 6.17
Comply With, Pay and
Discharge All Notes, Mortgages, Deeds of Trust and Leases
. Each
Borrower shall comply with, pay and discharge all existing notes, mortgages,
deeds of trust, leases, indentures and any other contractual arrangements to
which such Borrower or any Subsidiary is a party (including, without limitation,
all Indebtedness) in accordance with the respective terms of such instruments so
as to prevent any default thereunder.
Section 6.18
Appraisals
. If
and to the extent required at any time of the Issuer and/or the Original
Purchaser by any Government Authority or Requirements of Law, the Borrowers
shall permit an independent appraiser selected by the Issuer and/or the Original
Purchaser to conduct appraisals of the Property at any reasonable time following
reasonable notice, at the Borrowers’ reasonable expense. The
Borrowers shall facilitate such appraisals and may obtain copies of, but may not
rely, on such appraisals for any purpose.
Section 6.19
Negative
Covenants
. During
the term of this Bond Agreement, no Borrower or any of their respective
Subsidiaries shall:
(a)
Issue,
create, incur, assume or otherwise become liable with respect to (or agree to
issue, create, incur, assume or otherwise become liable with respect to), or
permit to remain outstanding, any Indebtedness except (i) Indebtedness of the
Borrowers under this Bond Agreement; (ii) Indebtedness which has been
subordinated to the Issuer in form and substance satisfactory to the Issuer
and/or the Original Purchaser; (iii) current liabilities (other than for
borrowed money) of a Borrower incurred in the ordinary course of business which
are not more than 90 days overdue, unless being contested in good faith and with
due diligence; (iv) Indebtedness secured by Permitted Liens (as hereafter
defined); (v) Indebtedness disclosed on any Borrower’s most recent financial
statements; and (vi) Indebtedness owed Original Purchaser.
(b)
Fail to
comply with negative covenants as contained in the Credit
Agreement.
(c)
Guarantee
or otherwise in any way become or be responsible for obligations of any other
Person, whether by an agreement to purchase the indebtedness of any other
Person, or agreement for the furnishing of funds to any other Person through the
purchase of goods, supplies or services (or by way of stock purchase, capital
contribution advanced or loaned) for the purpose of paying or discharging the
indebtedness of any Person, or otherwise, except for the endorsement of
negotiable instruments by any Borrower or any Subsidiary for deposit or
collection or similar transactions in the ordinary course of
business.
(d)
(i)
Except for sales of inventory in the ordinary course of business, in any fiscal
year sell, lease, transfer or otherwise dispose of Property having an aggregate
net book value in excess of $50,000, whether in one or in a series of
transactions; (ii) consolidate or merge with or into any other Person (except as
permitted by Section 6.11); (iii) directly or indirectly, sell or transfer
any Property, real or personal, used or useful in its business, and thereafter
lease such property or other property which it intends to use for substantially
the same purposes; (iv) sell, issue or otherwise distribute any security,
including any shares of, or the membership interest of, a Borrower; or (v)
create or permit any Subsidiary to create a new Subsidiary.
(e)
Create or
permit to be created or allow to exist any Lien upon or interest in any Property
except Permitted Liens. For purposes herein, Permitted Liens shall
mean: (i) Liens for
taxes,
assessments, or governmental charges, carriers’, warehousemen’s, repairmen’s,
mechanics’, materialmen’s and other like Liens, which are either not delinquent
or are being contested in good faith by appropriate proceedings which will
prevent foreclosure of such Liens, and against which adequate cash reserves have
been provided; (ii) easements, restrictions, minor title irregularities and
similar matters which have no material adverse effect upon the ownership and use
of the affected Property; (iii) Liens or deposits in connection with worker’s
compensation, unemployment insurance, social security or other insurance or to
secure customs duties, public or statutory obligations in lieu of surety, stay
or appeal bonds, or to secure performance of contracts or bids, other than
contracts for the payment of money borrowed, or deposits required by law as a
condition to the transaction of business or other Liens or deposits of a like
nature made in the ordinary course of business; (iv) Liens in favor of the
Original Purchaser pursuant to the Related Documents (as defined in the Credit
Agreement) and pursuant to the Bond Agreement and the Loan Documents; (v) Liens
evidenced by conditional sales, purchase money mortgages or other title
retention agreements on machinery and equipment (acquired in the ordinary course
of business and otherwise permitted to be acquired hereunder) which are created
at the time of the acquisition of such property solely for the purposes of
securing the Indebtedness incurred to finance the cost of such property,
provided no such Lien shall extend to any property other than the property so
acquired and identifiable proceeds; and (vi) Liens described in the Credit
Agreement.
(f)
Make or
commit to make advances, loans, extensions of credit or capital contributions
to, or purchases of any stock, bonds, notes, debentures or other securities of,
or make any other investment in, any Person except: (i) accounts,
chattel paper, and notes receivable created by a Borrower in the ordinary course
of business; (ii) advances in the ordinary course of business to suppliers,
employees and officers of a Borrower and its respective Subsidiaries consistent
with past practices in an aggregate amount at any time outstanding of not more
than $25,000; (iii) investments in bank certificates of deposit (but only with
FDIC-insured commercial banks having a combined capital and surplus in excess of
$20,000,000), open market commercial paper maturing within one year having the
highest rating of either Standard & Poor’s Ratings Services or Moody’s
Investors Service, U.S. Treasury Bills subject to repurchase agreements and
short-term obligations issued or guaranteed by the U.S. Government or any agency
thereof; and (iv) investments in open-end diversified investment companies of
recognized financial standing investing solely in short-term money market
instruments consisting of securities issued or guaranteed by the United States
government, its agencies or instrumentalities, time deposits and certificates of
deposit issued by domestic banks or London branches of domestic banks, bankers
acceptances, repurchase agreements, high grade commercial paper and the like;
provided that for Subsections (i) through (iv), each such investment has a
maturity date not later than 180 days after the date of purchase or making
thereof and, except for advances under clause (ii), is pledged and
delivered to the Issuer as additional security for the obligations
hereunder.
(g)
(i)
Terminate any Employee Plan so as to result in any material liability to PBGC;
(ii) engage in any “prohibited transaction” (as defined in Section 4975 of
the Code) involving any Employee Plan which would result in a material liability
for an excise tax or civil penalty in connection therewith; or (iii) incur or
suffer to exist any material “accumulated funding deficiency” (as defined in
Section 302 of ERISA), whether or not waived, involving any condition,
which presents a risk of incurring a material liability to PBGC by reason of
termination of any such Employee Plan.
(h)
Permit
any transaction with any Affiliate, except on terms not less favorable to such
Borrowers than would be usual and customary in similar transactions with Persons
who are not Affiliates.
Section 6.20
Consent to
Participation
. The
Borrowers hereby acknowledge and consent to the sale by the Original Purchaser
to the Participant of a participating interest in the Bonds and the Loan;
however, nothing shall be implied by the giving of such consent that such
consent was or is legally required and the Original Purchaser (and the
Participant) may, from time to time and at any time, sell additional
participating interests to third Persons, trade or repurchase such participating
interests with each other or with third parties, or otherwise deal with such
participating interests in such manner as either in its sole and exclusive
discretion may determine, except as may otherwise be provided in any agreement
between or among the Original Purchaser, the Participant or any other holder
from time to time of a participating interest in the
Bonds. Notwithstanding the foregoing, unless there shall first be
surrendered by the Original Purchaser a principal amount of Bonds to the Trusts
and such principal amount of Bonds shall be reissued registered in the name of
the Participant or any other holder of a participating interest in the Bonds,
all in compliance with Section 2.15, neither the Participant nor any other
holder of a participating interest in the Bonds shall be deemed a "Bondowner"
for any purpose hereunder. No holder of a participating interest in
the Bonds shall be deemed a "Participant" for purposes of
Section 6.15.
ARTICLE
VII
POWERS
AND DUTIES OF TRUSTEE
Section 7.01
Acceptance of
Trusts
. The
Trustee hereby accepts the trusts imposed upon it by this Bond Agreement, and
agrees to perform said trusts, but only upon and subject to the following
express terms and conditions, and no implied covenants or obligations shall be
read into this Bond Agreement against the Trustee:
(a)
The
Trustee, prior to the occurrence of any Event of Default and after the curing of
all Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth herein. In case an
Event of Default has occurred (which has not been cured) the Trustee shall
exercise such of the rights and powers vested in it by this Bond Agreement, and
use the same degree of care and skill in their exercise, as a reasonable and
prudent person would exercise or use under the circumstances in the conduct of
personal affairs.
(b)
The
Trustee may execute any of the trusts or powers hereof and perform any of its
duties by or through attorneys, agents or employees but shall be answerable for
the conduct of the same in accordance with the standard specified above, and
shall be entitled to act upon the opinion or advice of its Counsel concerning
all matters of trust hereof and the duties hereunder, and may in all cases pay
such reasonable compensation to all such attorneys, agents and employees as may
reasonably be employed in connection with the trust hereof. Such
reasonable compensation for counsel shall be paid by the
Borrower. The Trustee may act upon an opinion of independent counsel
and shall not be responsible for any loss or damage resulting from any action or
nonaction by it taken or omitted to be taken in good faith in reliance upon such
opinion of independent Counsel.
(c)
The
Trustee shall not be responsible for any recital herein or in the Bonds (except
in respect to the certificate of authentication of the Trustee endorsed on the
Bonds) or for
the
validity of the execution by the Issuer of this Bond Agreement or of any
supplements hereto or for the sufficiency of the security for the Bonds issued
hereunder or intended to be secured hereby, and the Trustee shall not be bound
to ascertain or inquire as to the performance or observance of any covenants,
conditions or agreements on the part of the Issuer or on the part of the
Borrowers in connection with this Bond Agreement, except as hereinafter set
forth; and the Trustee shall not be responsible or liable for any loss suffered
in connection with any investment of funds made by it in accordance with
Section 3.08.
(d)
The
Trustee shall not be accountable for the use of any Bonds authenticated or
delivered hereunder. The Trustee may become a Bondowner with the same
rights which it would have if not Trustee. The Trustee may in good
faith buy, sell, own and deal in any of the Bonds and may join in any action
which any Bondowner may be entitled to take with like effect as if the Trustee
were not a party to this Bond Agreement.
(e)
The
Trustee shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed by it to be genuine and correct and to have been signed or sent by the
proper Person or Persons. Any action taken by the Trustee pursuant to
this Bond Agreement upon the request, authority or consent of any person who at
the time of making such request or giving such authority or consent is the
Bondowner of any Bond, shall be conclusive and binding upon all future
Bondowners of the same Bond and upon Bonds issued in exchange therefor or in
place thereof.
(f)
As to the
existence or nonexistence of any fact or as to the sufficiency or validity of
any instrument, paper or proceeding, the Trustee shall be entitled to rely upon
a certificate signed on behalf of the Issuer by its Highest Elected Official or
Clerk or such other person as may be designated for such purpose by resolution
of the Issuer and attested to by the Clerk or such other person as may be
designated for such purpose by resolution of the Issuer as sufficient evidence
of the facts therein contained; and prior to the occurrence of a default of
which the Trustee has been notified as provided in subsection (h) of this
Section 7.01, or of which by said subsection it is deemed to have notice,
shall also be at liberty to accept and rely upon a similar certificate to the
effect that any particular dealing, transaction or action is necessary or
expedient, but may at its discretion secure such further evidence deemed
necessary or advisable, but shall in no case be bound to secure the
same. The Trustee may accept a certificate of the Issuer’s Clerk
under the Issuer’s seal, if any, to the effect that a resolution in the form
therein set forth has been adopted by the Issuer as conclusive evidence that
such resolution has been duly adopted, and is in full force and
effect. The resolutions, orders, opinions, certificates and other
instruments provided for herein may be accepted by the Trustee as conclusive
evidence of the facts and conclusions stated therein and shall be full warrant,
protection and authority to the Trustee for the withdrawal of cash and the
taking or omitting of any other action hereunder.
(g)
The
permissive right of the Trustee to do things enumerated herein shall not be
construed as a duty unless failure to take such action would be a violation of
the Trustee’s duty to mitigate damages, and the Trustee shall not be answerable
for other than its gross negligence or willful default.
(h)
The
Trustee shall not be presumed to have knowledge of any default or Event of
Default hereunder except failure to pay the principal of, premium, if any, and
interest on the Bonds, unless the Trustee shall be specifically notified in
writing of such default by the
Borrower,
the Issuer, the Original Purchaser or the Bondowners of at least 25% in
aggregate principal amount of Bonds Outstanding.
(i)
At any
and all reasonable times the Trustee and its duly authorized agents, attorneys,
experts, engineers, accountants and representatives shall have the right, but
shall not be required, to inspect all books, papers and records of the Issuer
pertaining to the Bonds and to take such memoranda from and in regard thereto as
may be desired.
(j)
The
Trustee shall not be required to give any bond or surety in respect of the
execution of said trusts and powers or otherwise in respect of the
premises.
(k)
Notwithstanding
anything contained elsewhere herein, the Trustee shall have the right, but shall
not be required, to demand, in respect of the authentication of any Bonds, the
withdrawal of any cash, the release of any property, or any action whatsoever
within the purview of this Bond Agreement, any showings, certificates, opinions,
appraisals or other information, or corporate action or evidence thereof, in
addition to that by the terms hereof required, as a condition of such action by
the Trustee deemed desirable for the purpose of establishing the right of the
Issuer to the authentication of any Bonds, the withdrawal of any cash, or the
taking of any other action by the Trustee.
(l)
Before
taking any action hereunder, the Trustee may require that satisfactory indemnity
be furnished to it for the reimbursement of all expenses to which it may be put
and to protect it against all liability, except liability which is adjudicated
to have resulted from its gross negligence or willful default, by reason of any
action so taken.
(m)
All
moneys received by the Trustee shall, until used or applied or invested as
herein provided, be held in trust in the manner and for the purposes for which
they were received but need not be segregated from other funds except to the
extent required by this Bond Agreement or law. The Trustee shall not
be under any liability for interest on any moneys received hereunder except such
as may be agreed upon.
Section 7.02
Specific Duty of Trustee to
File Continuation Statements
. The
Trustee shall periodically file Uniform Commercial Code continuation statements
as required to maintain and continue the perfection of any security interests
granted by the Issuer as debtor to the Trustee as secured party hereunder or
security interests granted by any Borrower as debtor to the Trustee as secured
party under the Security Documents. The Borrowers will reimburse the
Trustee for any and all expenses incurred for filings.
Section 7.03
Notice to Bondowners if an
Event of Default Occurs
. If
a default occurs of which the Trustee is by Section 7.01(h) presumed to
have knowledge, then the Trustee shall give written notice thereof by
first-class mail to the Bondowners of all Bonds then Outstanding.
Section 7.04
Intervention by
Trustee
. In
any judicial proceedings to which the Issuer is a party and which in the opinion
of the Trustee and its counsel has a substantial bearing on the interests of
Bondowners of the Bonds, the Trustee may intervene on behalf of Bondowners and
shall do so if requested in writing by the Bondowners of at least 25% in
aggregate principal amount of all Bonds then Outstanding, provided that the
Trustee shall first have been offered such
reasonable
indemnity against such liability as it may incur in or by reason of such
proceedings. The rights and obligations of the Trustee under this
Section 7.04 are subject to the approval of a court of competent
jurisdiction.
Section 7.05
Successor
Trustee
. Any
corporation or association into which the Trustee may be converted or merged, or
with which it may be consolidated, or to which it may sell or transfer its trust
business and assets as a whole or substantially as a whole, or any corporation
or association resulting from any such conversion, sale, merger, consolidation
or transfer to which it is a party, ipso facto, shall be and become a successor
Trustee hereunder and vested with all of the title to the whole property or
trust estate and all the trusts, powers, discretions, immunities, privileges and
all other matters as was its predecessor, without the execution or filing of any
instrument or any further act, deed or conveyance on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 7.06
Resignation by
Trustee
. The
Trustee and any successor Trustee may at any time resign from the trusts hereby
created by giving thirty (30) days’ prior written notice to the Issuer and the
Borrower, and by first-class mail to each Bondowner. Such resignation
shall take effect, however, only upon the appointment of a successor Trustee (or
a temporary Trustee as provided in Section 7.08) by the Bondowners or by
the Issuer and the acceptance of such appointment. If a successor
Trustee has not been appointed by the end of the 30-day period, the Trustee may
apply to a court of competent jurisdiction for the appointment of a successor
Trustee, and the costs, expenses and reasonable attorneys’ fees which are
incurred in connection with such a proceeding shall be paid by the
Borrower.
Section 7.07
Removal of
Trustee
. The
Trustee may be removed at any time, by an instrument or concurrent instruments
in writing delivered to the Trustee and to the Issuer, and signed by the
Bondowners of a majority in aggregate principal amount of Bonds then
Outstanding.
Section 7.08
Appointment of Successor
Trustee by Bondowners; Temporary Trustee
. In
case the Trustee hereunder shall resign or be removed, or be dissolved, or shall
be in course of dissolution or liquidation, or otherwise become incapable of
acting hereunder, or in case it shall be taken under the control of any public
officer or officers, or of a receiver appointed by a court, a successor may be
appointed by the Bondowners of a majority in aggregate principal amount of Bonds
then Outstanding by an instrument of concurrent instruments in writing signed by
such Bondowners, or by their attorneys-in-fact, duly authorized; provided,
nevertheless, that in case of such vacancy the Issuer by an instrument executed
and signed by the Issuer’s Highest Elected Official and attested to by its Clerk
under its seal may appoint a temporary Trustee to fill such vacancy until a
successor Trustee shall be appointed by the Bondowners in the manner above
provided; and any such temporary Trustee so appointed by the Issuer shall
immediately and without further act be superseded by the Trustee so appointed by
such Bondowners. Every such Trustee appointed pursuant to the
provisions of this Section 7.08 shall be a trust company or bank organized
and in good standing under the laws of the United States of America or any state
of the United States of America having the power and any authority to assume the
duties and trusts hereby created and having a reported capital, surplus and
undivided profits of not less than $5,000,000 or assets under administration of
not less than $100,000,000 if there be such an institution willing, qualified
and able to accept the trust upon reasonable or customary terms. If a
successor Trustee has not been appointed and has not accepted such appointment
within 30 days of the resignation or removal of the Trustee, the Trustee may
apply to a court of competent jurisdiction for the appointment of a
successor
Trustee, and the costs, expenses and attorneys’ fees which are incurred in
connection with such a proceeding shall be paid by the Borrowers as provided in
Section 7.12.
Section 7.09
Concerning Any Successor
Trustee
. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
its predecessor and also to the Issuer and the Borrowers an instrument in
writing accepting such appointment hereunder, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
of the properties, rights, powers, trusts, duties and obligations of its
predecessor; but such predecessor shall nevertheless, on the written request of
the Issuer, or of its successor, execute and deliver an instrument transferring
to such successor Trustee all the properties, rights, powers, and trusts of such
predecessor hereunder; and every predecessor Trustee shall deliver all
securities and moneys held by it as Trustee hereunder to its
successor. Should any instrument in writing from the Issuer be
required by any successor Trustee for more fully and certainly vesting in such
successor the properties, rights, powers and duties hereby vested or intended to
be vested in the predecessor, any and all such instruments in writing, shall, on
request, be executed, acknowledged and delivered by the Issuer.
Section 7.10
Acquisition of Conflicting
Interests by Trustee
. If
the Trustee has or shall acquire any conflicting interest, the Trustee shall,
within 90 days after ascertaining that it has such conflicting interest, either
eliminate the same or resign by giving notice in accordance with
Section 7.06 to the Issuer, the Borrowers and Bondowners within such
period, provided that such resignation shall become effective upon the
appointment of a successor Trustee and such successor’s acceptance of such
appointment, and the Issuer and the Trustee agree to take prompt steps to have a
successor appointed in the manner herein provided.
The
Trustee shall be deemed to have a conflicting interest hereunder if it has a
“conflicting interest” within the meaning of Section 3.10(b)(1) to (9),
inclusive, of the Trust Indenture Act of 1939, as amended, except that the
Trustee shall not be deemed to have a conflicting interest solely by reason of
its having for itself or as a banker become a purchaser, seller or pledgee of
the Bonds, it being understood that the Trustee may so deal with Bonds with the
same rights that it would have if it were not Trustee and without liability or
accountability to the Issuer or Bondowners on account thereof. Also,
it may act as depositary for any purpose for any committee formed to protect the
rights of Bondowners or effect or aid in any reorganization growing out of or
involving the enforcement of the Bonds or this Bond Agreement whether or not any
such committee shall represent the Bondowners of a majority in aggregate
principal amount of the Bonds Outstanding hereunder.
In the
event that the Trustee shall fail to comply with the provisions of this
Section 7.10, the Trustee shall within 10 days after the expiration of such
90-day period, transmit notice of such failure to the Bondowners.
Any
Bondowner who has been a bona fide Bondowner of a Bond or Bonds for at least six
months may, on behalf of himself, herself or itself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor, if the Trustee fails, after written
request therefor by such Bondowner, to comply with the provisions of this
Section.
Section 7.11
Requirement of a Corporate
Trustee
. Nekoosa
Port Edwards State Bank, Nekoosa, Wisconsin shall initially assume and perform
the duties of Trustee;
provided
,
however
, that it shall remain
Trustee only so long as it is the sole owner of the
Bonds. Immediately upon the sale or transfer of any of the Bonds to a
third person, the Original Purchaser shall appoint a Successor Trustee, subject
to approval by the Borrower, which approval shall not be unreasonably withheld,
and the acceptance of such appointment by the Successor Trustee. Such
Successor Trustee shall meet the requirements of a Corporate Trustee set forth
below. There shall at all times be one or more Trustees
hereunder. One of the Trustees hereunder shall at all times be a
corporate Trustee, and the corporate Trustee and any successor to the corporate
Trustee, appointed as hereinbefore provided, shall be a corporation organized
and doing business under the laws of the United States of America or any state
or territory thereof, or of the District of Columbia, and shall be authorized
under such laws to exercise corporate trust powers and be subject to supervision
or examination by federal, state, territorial or District of Columbia authority
and have a combined capital, surplus and undivided profits of not less than the
$5,000,000, or assets under administration of not less than $100,000,000;
provided
,
however
, that the preceding
combined capital, surplus and undivided profits test or assets under
administration test shall not apply to the Initial Trustee
hereunder. If such corporate Trustee publishes reports of its
condition at least annually, pursuant to law or to the requirements of any
supervising or examining authority hereinbefore referred to, then for the
purposes of this Section 7.11, the combined capital, surplus and undivided
profits of the corporate Trustee shall be deemed its combined capital, surplus
and undivided profits as the same is set forth in such corporate Trustee’s most
recent report of condition so published.
Section 7.12
Trustee’s
Fees
. The
Borrowers have agreed herein to pay certain fees and expenses of the Trustee for
acting as Trustee hereunder. The Trustee shall not be entitled to any
payment from the Issuer for fees or expenses of the Trustee, except to the
extent payable from Pledged Revenues. During the continuance of an
Event of Default, the Trustee shall have a first lien on Pledged Revenues, for
payment of its fees and expenses in accordance with this Bond Agreement, with a
right of payment therefrom prior to payment of any principal, premium, or
interest on the Bonds. The Trustee shall not be entitled to any
payments of fees or reimbursements of expenses which result from the gross
negligence or willful default of the Trustee.
ARTICLE
VIII
BOND
DEFAULTS AND REMEDIES
Section 8.01
Bond Defaults
Defined
. If
any of the following events occur, it is hereby defined as and declared to be
and to constitute a “
Bond
Default
”:
(a)
Failure
of the Issuer to make payment of any interest on any Bond when and as that
interest shall become due and payable;
(b)
Failure
of the Issuer to make payment of the principal of or any premium on any Bond
shall when and as that principal or premium shall become due and payable,
whether at stated maturity, by redemption, pursuant to any mandatory sinking
fund requirements, by acceleration or otherwise;
(c)
A “Loan
Default” shall occur under Section 9.01; or
(d)
The
Borrowers shall fail to pay any Obligation (including, without limitation, the
Promissory Note and the payments required by the Credit Agreement) when and as
the same become due and payable, whether upon demand, at maturity, by
acceleration or otherwise.
Section 8.02
Acceleration
. Upon
the occurrence of a Bond Default set forth in Section 8.01 while the
Original Purchaser holds any of the Bonds, unless waived in writing by the
Original Purchaser, the Trustee shall, by notice in writing delivered to the
Issuer and the Borrower, declare the principal of all Bonds then Outstanding and
the accrued interest thereon immediately due and payable, and such principal and
interest shall thereupon become and be immediately due and
payable. Upon the occurrence of a Bond Default set forth in
Section 8.01 when the Original Purchaser no longer holds any of the Bonds,
the Trustee may, and upon the written request of the Bondowners of not less than
25% in the aggregate principal amount of Bonds then Outstanding shall, by notice
in writing delivered to the Issuer and the Borrower, declare the principal of
all Bonds then Outstanding and the accrued interest thereon immediately due and
payable, and such principal and interest shall thereupon become and be
immediately due and payable.
Section 8.03
Remedies
. Upon
the occurrence of a Bond Default, the Trustee, may, in addition to acceleration
as provided in Section 8.02, pursue any available remedy by action at law
or suit in equity to enforce the payment of the principal of, premium, if any,
and interest on the Bonds. In exercising the rights given the Trustee
under this Article, the Trustee shall take such action as, in the judgment of
the Trustee applying the standards described in Section 7.01, would best
serve the interests of the Bondowners.
If any
Bond Default shall have occurred, and if requested so to do by the Bondowners of
at least 25% in aggregate principal amount of Bonds then Outstanding and if
indemnified as provided in Section 7.01, the Trustee shall be obliged to
exercise such one or more of the rights and powers conferred by this Article as
the Trustee, being advised by counsel, shall deem most expedient in the interest
of the Bondowners.
No remedy
by the terms of this Bond Agreement conferred upon or reserved to the Trustee
(or to the Bondowners) is intended to be exclusive of any other remedy, but each
and every such remedy shall be cumulative and shall be in addition to any other
remedy given to the Trustee or to the Bondowners hereunder or now or hereafter
existing at law or in equity or by statute.
No delay
or omission to exercise any right or power accruing upon any default or event of
default shall impair any such right or power or shall be construed to be a
waiver of any such default or event of default or acquiescence therein; and
every such right and power may be exercised from time to time and as often as
may be deemed reasonable or prudent.
No waiver
of any default or Bond Default hereunder, whether by the Trustee pursuant to the
provisions of Section 8.10 or by the Bondowners, shall extend to or shall
affect any subsequent default or event of default or shall impair any rights or
remedies consequent thereon.
Section 8.04
Right of Bondowners to
Direct Proceedings
. Anything
herein to the contrary notwithstanding, the Bondowners of a majority in
aggregate principal amount of Bonds then Outstanding shall have the right, at
any time, by an instrument or instruments in writing executed and delivered to
the Trustee, to direct the time, method and place of conducting all proceedings
to be taken in connection with the enforcement by the Trustee of the terms and
conditions
hereof, or for the appointment of a receiver or any other proceedings hereunder,
provided that such direction shall not be otherwise than in accordance with the
provisions of law and of this Bond Agreement. The foregoing shall not
prevent the Original Purchaser from enforcing its rights
hereunder.
Section 8.05
Waiver of Certain
Rights
. Upon
the occurrence of a Bond Default, to the extent that such rights may then
lawfully be waived, neither the Issuer nor anyone claiming through it or under
it, shall set up, claim or seek to take advantage of any moratorium, stay,
extension or redemption laws now or hereafter in force to prevent or hinder the
enforcement of this Bond Agreement, but the Issuer, for itself and all who may
claim through or under it hereby waives, to the extent that it lawfully may do
so, the benefit of all such laws to which it may be entitled by
law.
Section 8.06
Application of
Moneys
. All
moneys received by the Trustee pursuant to any right given or action taken under
the provisions of this Article shall, after payment of the cost and expenses of
the proceedings resulting in the collection of such moneys and of the expenses,
liabilities and advances incurred or made by the Trustee or the Issuer in
connection with the performance of its powers or duties under this Agreement
(including reasonable fees and disbursements of its counsel), be deposited into
the Bond Fund and all moneys held or deposited in the Bond Fund during the
continuance of a Bond Default shall be applied as follows:
(a)
Unless
the principal of all the Bonds has become or shall have been declared due and
payable, all such moneys shall be applied:
First
: To
the payment to the Persons entitled thereto of all installments of interest then
due on the Bonds, in the order of the maturity of the installments of such
interest including interest (to the extent permitted by law) on overdue
installments of interest, and, if the amount available shall not be sufficient
to pay in full any particular installment, then to the payment ratably,
according to the amounts due on such installment, to the persons entitled
thereto without any discrimination or privilege; and
Second
: To
the payment to the Persons entitled thereto of the unpaid principal of any of
the Bonds which shall have become due (other than Bonds called for redemption
for the payment of which moneys are held pursuant to the provisions hereof), in
the order of their due dates, with interest (to the extent permitted by law) on
such Bonds from the respective dates upon which they became due and, if the
amount available shall not be sufficient to pay in full Bonds due on any
particular date, together with such interest, then to the payment ratably,
according to the amount of principal due on such date, to the persons entitled
thereto without any discrimination or privilege.
Third
: To
the payment to the Persons entitled thereto of the unpaid premium, if any on any
of the Bonds which have been called for redemption, in the order of the
redemption dates, with interest (to the extent permitted by law) on such
premiums from the respective dates on which such premiums became due, and, if
the amount available shall not be sufficient to pay in full the premiums due on
any particular redemption date, together with such interest, then to the payment
ratably, according to the premium due on such date, to the persons entitled
thereto without any discrimination or privilege.
(b)
If the
principal of all the Bonds shall have become due or shall have been declared due
and payable, all such moneys shall be applied first to the payment of the
principal and interest then due and unpaid upon all of the Bonds, without
preference or priority of principal over interest or of interest over principal,
or of any installment of interest, or of any Bond over any other Bond, ratably,
according to the amounts due respectively for principal and interest, to the
persons entitled thereto without any discrimination or privilege, and secondly
to the payment of the premium, if any, then due, ratably to the persons entitled
thereto without any discrimination or privilege.
(c)
If the
principal of all the Bonds shall have been declared due and payable, and if such
declaration shall thereafter have been rescinded and annulled under the
provisions of this Article then, subject to the provisions of paragraph
(b) of this Section in the event that the principal of all the Bonds shall later
become due or be declared due and payable, the moneys shall be applied in
accordance with the provisions of paragraph (a) of this
Section.
Whenever
moneys are to be applied pursuant to the provisions of this Section 8.06,
such moneys shall be applied at such times from time to time as the Trustee
shall determine, having due regard to the amount of such moneys available for
application and the likelihood of additional moneys becoming available for such
application in the future. Whenever the Trustee shall apply such
funds, it shall fix the date (which shall be an Payment Date unless it shall
deem another date more suitable) upon which such application is to be made and
upon such date interest on the amounts of principal to be paid on such dates
shall cease to accrue. The Trustee shall give such notice as it may
deem appropriate of the deposit and shall not be required to make payment to the
Bondowner of any unpaid Bond until such Bond shall be presented to the Trustee
for appropriate endorsement or for cancellation if fully paid.
Section 8.07
Remedies Vested in
Trustee
. All
rights of action (including the right to file proof of claims) under this Bond
Agreement or under any of the Bonds may be enforced by the Trustee without the
possession of any of the Bonds or the production thereof in any trial or other
proceedings relating thereto and any such suit or proceeding instituted by the
Trustee shall be brought in its name as Trustee without the necessity of joining
as plaintiffs or defendants any Bondowners appertaining thereto, and any
recovery of judgment shall, subject to the provisions of Section 8.06, be
for the equal and ratable benefit of the Bondowners of the Bonds
Outstanding.
Section 8.08
Rights and Remedies of
Bondowners
. No
Bondowner, other than the Original Purchaser, shall have any right to institute
any suit, action or proceeding in equity or at law for the enforcement of this
Bond Agreement or for the execution of any trust thereof or for the appointment
of a receiver or any other remedy hereunder, unless a default has occurred of
which the Trustee has been notified as provided in Section 7.01(h), or of
which by said subsection it is deemed to have notice, nor unless also such
default shall have become a Bond Default and the Bondowners of at least a
majority in aggregate principal amount of Bonds then Outstanding shall have made
written request to the Trustee and shall have offered it reasonable opportunity
either to proceed to exercise the powers hereinbefore granted or to institute
such action, suit or proceeding in its own name nor unless also they have
offered to the Trustee indemnity as provided in Section 7.01 nor unless
also the Trustee shall thereafter fail or refuse to exercise the powers
hereinbefore granted, or to institute such action, suit or proceeding in its own
name; and such notification, request and offer of indemnity are hereby declared
in every case at the option of the Trustee to be conditions
precedent
to the execution of the powers and trust of this Bond Agreement, and to any
action or cause of action for the enforcement of this Bond Agreement, or for the
appointment of a receiver or for any other remedy hereunder; it being understood
and intended that no one or more Bondowners shall have any right in any manner
whatsoever to affect, disturb or prejudice the security of this Bond Agreement
by its, his or their action or to enforce any right hereunder except in the
manner herein provided and that all proceedings at law or in equity shall be
instituted, had and maintained in the manner herein provided and for the equal
benefit of the Bondowners of all Bonds then Outstanding. Nothing
herein contained shall, however, affect or impair (a) the right of any Bondowner
to enforce the payment of the principal of and interest on any Bond at and after
the stated maturity thereof, or the obligation of the Issuer to pay the
principal of, premium, if any, and interest on each of the Bonds issued
hereunder to the respective Bondowners at the time, place, from the source and
in the manner herein and in said Bonds expressed or (b) the right of the
Original Purchaser to enforce its rights hereunder.
Section 8.09
Termination of
Proceedings
. In
case the Trustee shall have proceeded to enforce any right hereunder and such
proceedings shall have been discontinued or abandoned for any reason, or shall
have been determined adversely, then and in every such case the Issuer, the
Borrowers and the Trustee shall be restored to their former positions and rights
hereunder and all rights, remedies and powers of the Trustee shall continue as
if no such proceedings had been taken.
Section 8.10
Waivers of Bond
Defaults
. The
Trustee shall waive any Bond Default hereunder and its consequences and rescind
any declaration of maturity of principal of and interest on the Bonds upon the
written request of the Bondowners of a majority in aggregate principal amount of
all of the Bonds then Outstanding;
provided
,
however
, that there shall not
be waived without the consent of the Bondowners of all the Bonds Outstanding (i)
any Bond Default in the payment of the principal of any outstanding Bonds at the
date of maturity specified therein or at the date fixed for the redemption
thereof, or (ii) any Bond Default in the payment when due of the interest on any
such Bonds unless, prior to such waiver or rescission, all arrears of interest,
with interest (to the extent permitted by law) on overdue installments of
interest at the rate per annum provided in the Bonds, and/or all arrears of
payments of principal, with interest (to the extent permitted by law) on overdue
principal at the rate per annum provided in the Bonds, as the case may be, and
all expenses of the Trustee in connection with such default shall have been paid
or provided for; and in case of any such waiver or rescission, or in case any
proceeding taken by the Trustee on account of any such default shall have been
discontinued or abandoned or determined adversely, then and in every such case
the Issuer, the Trustee and the Bondowners shall be restored to their former
positions and rights hereunder respectively, but no such waiver or rescission
shall extend to any subsequent or other default, or impair any right consequent
thereon.
ARTICLE
IX
LOAN
DEFAULTS AND REMEDIES
Section 9.01
Loan Defaults
Defined
. If
any of the following events occur, it is hereby defined as and declared to be
and to constitute a “
Loan
Default
”:
(a)
Default
in the due and punctual payment of any installment of principal or any payment
of interest or premium on the Loan or any Obligation (including, without
limitation,
the Note
and the payments required by the Credit Agreement) or otherwise due hereunder
when and as the same shall become due and payable, whether upon demand, at
maturity, by acceleration or otherwise;
(b)
The
Borrowers shall fail to observe or perform any of the covenants, agreements or
conditions of the Borrowers contained in this Bond Agreement (including the
occurrence of a Bond Default) or in the Security Documents or in any provision
of the Credit Agreement;
(c)
Any
representation or warranty made by the Borrowers herein or in any of the
Security Documents or in any certificate, document or financial statement
delivered to the Issuer shall prove to have been incorrect in any material
adverse respect as of the time when made or given;
(d)
Any
Borrower shall (i) become insolvent or take or fail to take any action which
constitutes an admission of inability to pay its debts as they mature; (ii) make
an assignment for the benefit of creditors; (iii) petition or apply to any
tribunal for the appointment of a custodian, receiver or any trustee for such
Borrower or a substantial part of its respective assets; (iv) suffer any such
custodianship, receivership or trusteeship to continue undischarged for a period
of thirty days or more; (v) commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; (vi) by
any act or omission indicate its consent to, approval of or acquiescence in any
such petition, application or proceeding or order for relief or the appointment
of a custodian, receiver or any trustee for it or any substantial part of any of
its properties; or (vii) adopt a plan of liquidation of its assets;
(e)
Any
Person shall (i) petition or apply to any tribunal for the appointment of a
custodian, receiver or any trustee for any Borrower or a substantial part of its
assets which continues undischarged for a period of thirty days or more; or (ii)
commence any proceeding against such Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect, in which
an order for relief is entered or which remains undismissed for a period of 30
days or more; or
(f)
A Bond
Default shall occur under Section 8.01.
Section 9.02
Certain Notices to
Borrower
. In
the event that the Trustee fails to receive when due any payment of principal or
interest by the Borrowers on the Loan, the Trustee shall promptly give written
notice thereof by telegram or if telegraphic service is not available then by
registered or certified mail, postage prepaid, or by messenger to the Borrowers
specifying such failure. Such notice, however, shall not be a
condition precedent to the exercise of any remedy hereunder, and failure to give
such notice shall not preclude such default from being a Loan
Default.
Section 9.03
Acceleration Upon Certain
Circumstances
. Upon
the occurrence of a Loan Default, the Trustee may, by written notice to the
Borrower, declare the Loan to be immediately due and payable and/or may pursue
any available remedy by suit at law or in equity to insure or realize the
payment of the principal of, premium, if any, and interest under this Bond
Agreement. In the event that the Trustee shall accelerate the Bonds
pursuant to Section 8.02, the Trustee shall, by written notice to the
Borrower, declare the entire outstanding principal balance of
the Loan
together with all interest accrued thereon to be due and payable, and such
principal and interest shall thereupon become and be immediately due and
payable.
Section 9.04
Remedies
. Whenever
any Loan Default shall have happened, the Trustee may declare all Loan
Repayments for the remainder of the term of this Bond Agreement (being an amount
equal to that necessary to pay in full all Outstanding Bonds, assuming
acceleration of the Bonds hereunder, and all other indebtedness hereunder) to be
immediately due and payable by the Borrowers and may declare the entire
outstanding principal balance of the Loan, together with all interest accrued
thereon, to be due and payable,
provided
,
however
, that there may be no
acceleration of the Loan unless there is an acceleration of the Bonds hereunder;
and any acceleration of the Bonds hereunder shall result in an acceleration of
the Loan. Upon the occurrence of a Loan Default, the Trustee may also
take whatever action at law or in equity may appear necessary or appropriate to
collect the Loan Repayments then due and thereafter to become due or to enforce
performance and observance of any obligation, agreement or covenant of the
Borrowers hereunder.
Section 9.05
Disposition of
Funds
. Any
amounts collected pursuant to action taken under Section 9.03 and
Section 9.04 shall be paid into the Bond Fund and applied in accordance
with the provisions of Section 8.06.
Section 9.06
Manner of
Exercise
. No
remedy conferred upon or reserved to the Trustee or the Original Purchaser
hereunder is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. No delay or omission to exercise any right or power
occurring upon any default shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right and power may be exercised
from time to time and as often as may be deemed expedient. In order
to entitle the Trustee or the Original Purchaser to exercise any remedy reserved
to it in this Article, it shall be necessary to give only such notice as may be
herein expressly required.
Section 9.07
Attorneys’ Fees and
Expenses
. In
the event the Borrowers should default under any of the provisions hereof and
the Issuer, the Original Purchaser or the Trustee should employ attorneys or
incur other expenses (including the costs and expenses of the Issuer Attorney
and/or Original Purchaser Attorney) for the collection of the Loan or the
enforcement of performance of any obligation or agreement on the part of the
Borrowers hereunder, the Borrowers shall pay to the Issuer, the Original
Purchaser or the Trustee the reasonable fee of such attorneys and such other
expenses so incurred.
Section 9.08
Effect of
Waiver
. In
the event any agreement contained herein should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other
breach.
Section 9.09
Waiver of Stay or Extension
Laws
. The
Borrowers covenant (to the extent that they may lawfully do so) that they will
not at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law wherever enacted, now or
at any time hereafter in force, which may affect the covenants or the
performance of this Bond Agreement; and the Borrowers (to the extent that they
may lawfully do so) hereby expressly waive all benefit or advantage of any such
law, and covenant that they will not hinder,
delay or
impede the execution of any power granted herein to the Issuer or the Trustee,
but will permit the execution of every such power as though no such law had been
enacted.
ARTICLE
X
AMENDMENTS
Section 10.01
Amendments Without
Bondowners’ Consent
. The
Issuer, the Original Purchaser, the Borrowers and the Trustee may, without the
consent of or notice to the Bondowners, agree to any supplement, amendment,
change or modification of this Bond Agreement and the Promissory Notes in
connection with any change therein for any of the following
purposes:
(a)
To add
additional covenants of the Issuer or to surrender any right or power herein
conferred upon the Issuer;
(b)
To add
additional covenants of the Borrowers or to surrender any right or power therein
conferred upon the Borrowers or to add additional security for the performance
of their obligations;
(c)
For any
purpose not inconsistent with the terms hereof or to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision contained herein, or to make such other
provisions in regard to matters or questions arising hereunder which shall not
be inconsistent with the provisions hereof and which, in the judgment of the
Trustee, shall not materially adversely affect the interests of the Bondowners;
and
(d)
To make
such other provisions in regard to matters or questions arising thereunder which
shall not be inconsistent with the provisions hereof and which, in the judgment
of the Trustee, shall not materially adversely affect the interests of the
Bondowners.
Section 10.02
Amendments With Bondowners’
Consent
. Except
as provided above, no amendment to this Bond Agreement, the Promissory Note or
the Security Documents may be entered into except when consented to by the
Borrowers and approved by Requisite Consent of Bondowners, provided that no
amendment shall be made that materially adversely affects the rights of some but
less than all the outstanding Bonds without the Requisite Consent of Bondowners
so affected; and provided further that unanimous written consent of the
Bondowners shall be required for any amendment with respect to (i) the amount or
due date of any principal or interest payment upon any Bonds or the Loan, (ii)
the mandatory redemption provisions of any Bonds, and (iii) this
ARTICLE X.
If at any
time the Issuer shall request the Trustee to enter into any amendment for any of
the purposes of this Section 10.02, the Trustee shall, upon being
satisfactorily indemnified with respect to expenses, mail a copy of the notice
by first-class mail to each Bondowner thirty (30) days prior to entering into
any amendment. Such notice shall briefly set forth the nature of the
proposed amendment and shall state that copies thereof are on file at the
Trustee’s Principal Office for inspection by all Bondowners. If
thereafter any such amendment shall have been consented to and approved as
herein provided, no Bondowner shall have any right to object to any of the terms
and provisions contained therein, or the operation thereof, or in any manner to
question the propriety of
the
execution thereof, or to enjoin or restrain the Trustee or the Issuer from
executing the same or from taking any action pursuant to the provisions
thereof. Upon the execution of any such amendment as in this Section
permitted and provided, this Bond Agreement shall be and be deemed to be
modified and amended in accordance therewith.
Section 10.03
Consent of
Borrower
. Anything
herein to the contrary notwithstanding, no amendment, change or modification
under this Article affecting the rights or obligations of the Borrowers shall be
effective unless Borrowers shall have consented in writing thereto.
Section 10.04
Special Provisions Regarding
Certain Amendments
.
Notwithstanding
any provision of this ARTICLE X or any other provision of this Bond
Agreement to the contrary, the provisions of Section 2.05, including the
redemption provisions set forth in Section 2.05(a) and of Section 6.14
may be amended as provided in those sections.
ARTICLE
XI
ASSIGNMENT
In
consideration of the premises, the acceptance by the Trustee of the trusts
hereby created, and the purchase and acceptance of delivery of the Bonds by the
Original Purchaser, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, and to secure the payment of
the principal of, premium, if any, and interest on all Bonds at any time issued
and outstanding hereunder according to their tenor and effect, and to secure the
performance and observance by the Issuer of all the covenants contained in the
Bonds and in this Bond Agreement, the Issuer does hereby convey, transfer, set
over, pledge, assign, and grant a security interest in and confirm unto the
Trustee, its successors and assigns forever, all and singular the properties,
revenues and rights hereinafter described and the proceeds thereof (collectively
called the “
Trust
Estate
”), to wit:
(a)
All
right, title and interest of the Issuer in, to and under this Bond Agreement and
the right to receive revenues and payments from the Borrowers
hereunder;
(b)
All
right, title and interest of the Issuer in and to the Pledged
Revenues;
(c)
All
right, title and interest of the Issuer in and to the Promissory
Note;
(d)
All
right, title and interest of the Issuer in and to the Security
Documents;
(e)
All
right, title and interest of the Issuer in and to the Trust Funds (with the
exception of the Rebate Credit Account) and the cash, securities and investments
of which they are comprised; and
(f)
All
property which by the express provisions hereof is required to be subjected to
the lien hereof, and any additional property that may from time to time
hereafter be made subject to the lien hereof by the Issuer or by anyone on its
behalf;
IN TRUST,
for the equal and ratable benefit and security of the Bondowners without
preference, priority or distinction as to lien or otherwise of any particular
Bond over any other Bond, except as otherwise expressly provided
herein;
PROVIDED,
HOWEVER, that the Issuer reserves the right to enforce the Unassigned Rights in
its own name and for its own account; and
PROVIDED,
FURTHER, that if the Issuer shall pay, cause to be paid or provide for the
payment of the principal of, premium, if any, and interest on the Bonds in
accordance with Section 2.23, and if the Issuer shall promptly, faithfully
and strictly keep, perform and observe all of its representations, covenants and
agreements contained herein, then in such event this Bond Agreement and the
rights hereby granted (excepting Bondowners’ rights theretofore vested) shall
cease, terminate and be void, otherwise to remain in full force and effect upon
the trusts and subject to the conditions hereinafter set forth.
All Bonds
issued and secured hereunder are to be issued, authenticated and delivered, and
all Trust Funds, revenues and income hereby pledged are to be dealt with and
disposed of under and subject to the terms, conditions, stipulations, covenants,
agreements, trusts, uses and purposes herein expressed, and the Issuer has
agreed and covenanted, and does hereby agree and covenant, with the Trustee and
with the respective Bondowners from time to time of the Bonds, as set forth
herein.
ARTICLE
XII
GENERAL
Section 12.01
Notices
. Unless
otherwise expressly provided herein, all notices, certificates or other
communication hereunder shall be sufficiently given and shall be deemed given
when hand delivered, sent via facsimile transmission with evidence of receipt or
when mailed by first class mail, postage prepaid, or by e-mail addressed as
follows: (i) if to the Issuer, at the Issuer’s Address; (ii) if to
the Borrower, at the Borrowers’ Address; (iii) if to the Trustee, at the
Trustee’s Address; and (v) if to the Original Purchaser, at the Original
Purchaser’s Address.
A
duplicate copy of each notice, certificate or other communication given
hereunder by either the Issuer or the Trustee shall also be concurrently given
to the Borrowers at its Address.
Whenever
the Trustee is required hereunder to give notice to Bondowners, it shall give
such notice by first class mail to each person on the Bond Register whose Bond
is affected thereby.
Section 12.02
Consent of
Bondowners
. Any
consent, request, direction, approval, objection or other instrument required by
this Bond Agreement to be signed and executed by the Bondowners may be in any
number of concurrent writings of similar tenor and may be signed or executed by
such Bondowners in person or by agent appointed in writing. Proof of
the execution of any such consent, request, direction, approval, objection or
other instrument or of the writing appointing any such agent and of the
ownership of Bonds, if made in the following manner, shall be sufficient for any
of the purposes hereof, and shall be conclusive in favor of the Trustee with
regard to any action taken under such request for other instrument,
namely: The fact and date of the execution by any person of any such
writing may be proved by the certificate of any officer in any jurisdiction who
by law had power to take acknowledgments within such jurisdiction that the
person signing such writing acknowledged before him the execution thereof, or by
an affidavit of any witness to such execution.
Section 12.03
Limitation of
Rights
. With
the exception of rights herein expressly conferred, nothing expressed or
mentioned in or to be implied from this Bond Agreement or the Bonds is intended
or shall be construed to give to any person other than the parties hereto, the
Borrowers and the Bondowners any legal or equitable right, remedy or claim under
or in respect to this Bond Agreement, or any covenants, conditions and
provisions hereof, which are and are intended to be for the sole and exclusive
benefit of the parties hereto, the Borrowers and the Bondowners as herein
provided.
Section 12.04
Captions
. The
captions or headings in this Bond Agreement are for convenience only and in no
way define, limit or describe the scope or intent of any provisions
hereof.
Section 12.05
Execution
Counterparts
. This
Bond Agreement may be simultaneously executed in several counterparts, each of
which shall be an original and all of which shall constitute but one and the
same instrument.
Section 12.06
Severability
. In
the event any provision hereof shall be held invalid or unenforceable by any
court of competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision.
Section 12.07
Binding
Effect
. This
Bond Agreement shall inure to the benefit of and shall be binding upon the
Issuer, the Original Purchaser and the Borrowers and its heirs, successors and
assigns.
Section 12.08
Governing
Law
. This
Bond Agreement shall be governed by, and interpreted in accordance with, the
laws of the State of Wisconsin.
ARTICLE
XIII
AGREEMENT
TO PURCHASE BONDS AND FUND BORROWERS’ REQUISITIONS
Subject
to the conditions set forth in this ARTICLE XIII, the Original Purchaser
agrees to purchase the Bonds, and to fund Borrowers’ Requisitions as provided in
Sections 3.01, 3.02, 4.01 and 4.02 of this Bond Agreement;
provided
,
however
, that the Original
Purchaser shall be required to fund a Borrower's Requisition only if no Event of
Default is continuing hereunder and if the
Borrowers
has submitted to the Original Purchaser for approval a Borrower's Requisition in
the form set forth in
Exhibit D
attached hereto and if the Trustee will have a first priority perfected purchase
money security interest in the assets purchased upon the funding of such
Borrower’s Requisition.
In
addition to the terms and conditions otherwise contained herein, the obligation
of the Original Purchaser to purchase the Bonds is conditioned upon the Original
Purchaser receiving each of the following items in form, detail and content
satisfactory to the Original Purchaser:
Section 13.01
Pledges
. The
Borrowers shall have provided to the Original Purchaser a certification signed
by the President of the Borrowers to the effect that, as of the date of Closing,
the Borrowers have in their possession signed pledge cards or letters or
writings of similar import evidencing not less than $450,000 in outstanding
unfunded pledges from donors, all of which pledges are unrestricted as to the
use of the pledged monies. Such certificate shall be accompanied by
such evidence of the existence of such pledges as the Original Purchaser shall
reasonably require. It shall not be an Event of Default hereunder if
any such Donor fails to honor all or any part of his, her or its
pledge.
Section 13.02
Certain Related
Documents
. This
Bond Agreement, the Security Agreement, the Mortgage, the Disbursing Agreement,
the Collateral Assignment of Construction Contracts, and all other certificates,
resolutions, or other documents required or completed hereunder shall have been
executed and provided to the Original Purchaser.
Section 13.03
Bond
Documents
. The
execution and delivery of the Bond Documents and the issuance and sale of the
Bonds.
Section 13.04
Closing
Certificate
. Closing
certificates from Borrowers in form and substance acceptable to the Original
Purchaser.
Section 13.05
UCC
Searches
. A UCC
report certified to by the Department of Financial Institutions of the State of
Wisconsin indicating that the Borrowers’ Property is not subject to any security
interest other than Permitted Liens.
Section 13.06
Insurance
Certificates
.
Certificates of Borrowers’ insurance coverages, showing insurance protection as
required by this Agreement and the Related Documents.
Section 13.07
Title
Insurance
.
Delivery to the
Original Purchaser of commitments for mortgage title insurance issued by a title
insurance company acceptable to the Original Purchaser under a current ALTA
form: (i) insuring that the Borrowers have a fee simple estate
in the Project Real Property, subject to the Mortgage; (ii) insuring that
the Mortgage is a valid paramount lien on the Project Real Property in an amount
of $4,000,000, subject only to Permitted Liens; (iii) insuring against loss
or damage incurred by reason of construction liens which are or may be prior to
the lien of the Mortgage; (iv) excluding any exceptions for rights of
parties in possession or matters which would be disclosed by surveys of the
Project Real Property; and (v) containing gap and such other endorsements
as the Original Purchaser may request.
Section 13.08
Survey
. [Reserved]
.
Section 13.09
Environmental
Reports
. Receipt
by the Original Purchaser of such environmental reports and site assessments
with respect to the Project Real Property (including, without limitation, Phase
I and other environmental inspections and soil tests) as the Original Purchaser
may request, and receipt by the Original Purchaser of a completed environmental
questionnaire with respect to the Project Real Property in such form as the
Original Purchaser may request and satisfactory to the Original Purchaser in all
respects.
Section 13.10
Counsel
Opinion
. Receipt
by the Original Purchaser, from Haferman & Ilten, Stevens Point, Wisconsin,
counsel to the Borrower, of satisfactory opinions as to (a) the due
authorization, execution and delivery of this Agreement; (b) the other
matters referred to in Sections 6.01 and 6.02 and (c) such other
matters relating to each Borrower and the validity and enforceability of this
Agreement and the Related Documents as the Original Purchaser shall reasonably
require; and the Original Purchaser shall have received from Whyte Hirschboeck
Dudek S.C., Milwaukee, Wisconsin, bond counsel; (x) an approving opinion
regarding the Bonds, including an opinion confirming the tax-exempt status of
interest on the Bonds; and (y) an opinion that the Bonds are exempt from
registration under the Securities Act of 1933, as amended.
Section 13.11
Real Estate
Appraisals
. Receipt
by the Original Purchaser of an as-built appraisal of the Project Real Property,
prepared by an appraiser licensed in the State of Wisconsin selected by the
Original Purchaser, which appraisal shall be addressed to the Original
Purchaser, conform with applicable Requirements of Law as to form and content,
be in form and substance satisfactory to the Original Purchaser, and reflect an
appraised value of the Project Real Property equal to or more than $4,000,000 of
which the Original Purchaser acknowledges receipt acceptable in form and
content.
Section 13.12
Proceedings
Satisfactory
. All
proceedings taken in connection with the transactions contemplated by this
Agreement, the applicable Related Documents and the Bond Documents, and all
instruments, authorizations and other documents applicable thereto, shall be
satisfactory in form and substance to the Original Purchaser and its
counsel.
Section 13.13
Project
Compliance
. Borrowers
providing Original Purchaser evidence in form satisfactory to Original Purchaser
the following: (i) proof the Project is in compliance with all applicable
zoning laws, regulations and ordinances; (ii) a complete set of final
working plans and specifications of the Project indicating conformance with all
current state, federal, and local laws, codes, regulations, and ordinances
(including handicap access regulations), and indicating a level of quality of
the Project acceptable to Original Purchaser; and (iii) a complete cost
breakdown of the Project on standard breakdown sheets, along with a copy of the
major contracts and subcontracts for the Project.
Section 13.14
Supporting
Documents
. Such
additional supporting documents and materials as the Original Purchaser may
request from the Borrower.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Issuer, the Borrowers, the Trustee and the Original
Purchaser have caused this Bond Agreement to be executed and delivered as of the
date first above written.
[SEAL]
|
CITY
OF WISCONSIN RAPIDS, WISCONSIN
By:
/s/
Mary Jo
Carson
Mary Jo Carson,
Mayor
By:
/s/
Vernon J.
Borth
Vernon J. Borth, City
Clerk
|
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
By:
/s/
Jamie L.
Mancl
Jamie L. Mancl,
President
|
|
M
& W FIBERGLASS, LLC
By:
/s/ Jamie
L.
Mancl
Jamie
L. Mancl, Sole Member
|
|
/s/
Jamie L.
Mancl
JAMIE
L. MANCL
/s/
Jennifer
Mancl
JENNIFER
MANCL
|
|
NEKOOSA PORT EDWARDS STATE
BANK
, as Trustee
By:
/s/ Robb
Nash
Sigler
Robb Nash Sigler
|
|
NEKOOSA
PORT EDWARDS STATE BANK,
as
Original Purchaser
By:
/s/ Robb Nash
Sigler
Robb Nash
Sigler
|
|
[Signature
Page to Bond Agreement]
$4,000,000
City
of Wisconsin Rapids , Wisconsin
Industrial
Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced
Fiberglass Technologies Project)
|
|
EXHIBIT A
PROJECT
DESCRIPTION
The project consists of the
construction and equipping of an approximately 70,000 square-foot manufacturing
facility located on a 22 acre parcel in the Rapids East Commerce Center, and
having a street address of 4400 Commerce Drive, in the City of Wisconsin Rapids,
Wisconsin (the “Project”) to be owned by M&W Fiberglass, LLC and leased
to Advanced Fiberglass Technologies, Inc. for its use in connection with its
business of manufacturing fiberglass products. The initial
operator of the Project will be Advanced Fiberglass Technologies,
Inc.
EXHIBIT B
FORM OF
BOND
EXHIBIT C
FORM OF
PROMISSORY NOTE
FORM
OF BORROWERS’ REQUISITION
|
D-1
EXHIBIT 10.3
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
PROMISSORY NOTE 2007A DATED FEBRUARY 28,
2007
THIS
PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
APPLICABLE STATE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE AND MAY NOT BE
DISPOSED OF TO ANY PERSON OTHER THAN NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA,
WISCONSIN, UNLESS IT IS REGISTERED THEREUNDER OR THERE IS DELIVERED TO NEKOOSA
PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE UNDER A
BOND AGREEMENT DATED EVEN HEREWITH, AN OPINION OF RECOGNIZED COUNSEL
SATISFACTORY TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS
SUCCESSOR AS TRUSTEE, TO THE EFFECT THAT IT MAY BE RESOLD OR OTHERWISE DISPOSED
OF PURSUANT TO EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
PROMISSORY
NOTE
(Series
2007A)
$3,000,000
|
February
28, 2007
|
FOR VALUE
RECEIVED, the undersigned, Advanced Fiberglass Technologies, Inc.,
M & W Fiberglass, LLC and Jamie L. Mancl and Jennifer Mancl (the
“
Borrowers
,”
which term shall be construed to include the heirs, personal representatives,
and successors and assigns of the Borrowers), promise to pay to the order of the
CITY OF WISCONSIN RAPIDS, WISCONSIN, a municipality existing under the laws of
the State of Wisconsin (the “
Issuer
”), the
principal sum of THREE MILLION DOLLARS ($3,000,000.00) (or so much as may have
been requisitioned under that certain Bond Agreement (the “
Bond Agreement
”)
dated February 28, 2007 by and among the Issuer, the Borrowers, Nekoosa Port
Edwards State Bank, Nekoosa, Wisconsin, as Trustee, and Nekoosa Port Edwards
State Bank, Nekoosa, Wisconsin, as Original Purchaser, which Bond Agreement
secures the Bonds referenced above), payable in the same installments of
principal and interest, due on the same dates and at the same interest rates and
premiums, as are set forth for the Bonds in the Bond Agreement.
This
Promissory Note constitutes the Promissory Note issued under the Bond Agreement,
which Bond Agreement is hereby incorporated herein by this
reference. Reference is hereby made to the Bond Agreement for a
statement of the terms and conditions on which the Loan evidenced hereby was
made, for a description of the circumstances under which there shall be credits
allowed against the installments of principal and interest on this Promissory
Note, and for a description of the terms and conditions upon which this
Promissory Note may be prepaid or its maturity accelerated.
ADVANCED FIBERGLASS
TECHNOLOGIES, INC.
,
a
Wisconsin corporation
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl,
President
|
M & W FIBERGLASS,
LLC
,
a
Wisconsin limited liability company
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl, Sole
Member
|
/s/ Jamie L.
Mancl
JAMIE L. MANCL
|
/s/
Jennifer
Mancl
JENNIFER
MANCL
|
ASSIGNMENT
FOR VALUE
RECEIVED, the undersigned, City of Wisconsin Rapids, Wisconsin, hereby assigns,
without recourse, all its right, title and interest in and to the above
Promissory Note to Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, or its
successor or successors, as Trustee under the Bond Agreement referenced
above.
Dated: February
28, 2007.
|
CITY
OF WISCONSIN RAPIDS, WISCONSIN
By:
/s/ Mary Jo
Carson
Mary Jo Carson,
Mayor
By:
/s/ Vernon J.
Borth
Vernon J. Borth City
Clerk
|
EXHIBIT 10.4
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
PROMISSORY NOTE 2007B DATED FEBRUARY 28,
2007
THIS
PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
APPLICABLE STATE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE AND MAY NOT BE
DISPOSED OF TO ANY PERSON OTHER THAN NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA,
WISCONSIN, UNLESS IT IS REGISTERED THEREUNDER OR THERE IS DELIVERED TO NEKOOSA
PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE UNDER A
BOND AGREEMENT DATED EVEN HEREWITH, AN OPINION OF RECOGNIZED COUNSEL
SATISFACTORY TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS
SUCCESSOR AS TRUSTEE, TO THE EFFECT THAT IT MAY BE RESOLD OR OTHERWISE DISPOSED
OF PURSUANT TO EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
PROMISSORY
NOTE
(Series
2007B)
$500,000
|
February
28, 2007
|
FOR VALUE
RECEIVED, the undersigned, Advanced Fiberglass Technologies, Inc.,
M & W Fiberglass, LLC and Jamie L. Mancl and Jennifer Mancl (the
“
Borrowers
,”
which term shall be construed to include the heirs, personal representatives,
and successors and assigns of the Borrowers), promise to pay to the order of the
CITY OF WISCONSIN RAPIDS, WISCONSIN, a municipality existing under the laws of
the State of Wisconsin (the “
Issuer
”), the
principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,00.00) (or so much as may
have been requisitioned under that certain Bond Agreement (the “
Bond Agreement
”)
dated February 28, 2007 by and among the Issuer, the Borrowers, Nekoosa Port
Edwards State Bank, Nekoosa, Wisconsin, as Trustee, and Nekoosa Port Edwards
State Bank, Nekoosa, Wisconsin, as Original Purchaser, which Bond Agreement
secures the Bonds referenced above), payable in the same installments of
principal and interest, due on the same dates and at the same interest rates and
premiums, as are set forth for the Bonds in the Bond Agreement.
This
Promissory Note constitutes the Promissory Note issued under the Bond Agreement,
which Bond Agreement is hereby incorporated herein by this
reference. Reference is hereby made to the Bond Agreement for a
statement of the terms and conditions on which the Loan evidenced hereby was
made, for a description of the circumstances under which there shall be credits
allowed against the installments of principal and interest on this Promissory
Note, and for a description of the terms and conditions upon which this
Promissory Note may be prepaid or its maturity accelerated.
ADVANCED FIBERGLASS
TECHNOLOGIES, INC.
,
a
Wisconsin corporation
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl,
President
|
M & W FIBERGLASS,
LLC
,
a
Wisconsin limited liability company
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl, Sole
Member
|
/s/ Jamie L.
Mancl
JAMIE L. MANCL
|
/s/ Jennifer
Mancl
JENNIFER
MANCL
|
ASSIGNMENT
FOR VALUE
RECEIVED, the undersigned, City of Wisconsin Rapids, Wisconsin, hereby assigns,
without recourse, all its right, title and interest in and to the above
Promissory Note to Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, or its
successor or successors, as Trustee under the Bond Agreement referenced
above.
Dated: February
28, 2007.
|
CITY
OF WISCONSIN RAPIDS, WISCONSIN
By:
/s/ Mary Jo
Carson
Mary Jo Carson,
Mayor
By:
/s/ Vernon J.
Borth
Vernon J. Borth City
Clerk
|
EXHIBIT 10.5
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
PROMISSORY NOTE 2007C DATED FEBRUARY 28,
2007
THIS
PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
APPLICABLE STATE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE AND MAY NOT BE
DISPOSED OF TO ANY PERSON OTHER THAN NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA,
WISCONSIN, UNLESS IT IS REGISTERED THEREUNDER OR THERE IS DELIVERED TO NEKOOSA
PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE UNDER A
BOND AGREEMENT DATED EVEN HEREWITH, AN OPINION OF RECOGNIZED COUNSEL
SATISFACTORY TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS
SUCCESSOR AS TRUSTEE, TO THE EFFECT THAT IT MAY BE RESOLD OR OTHERWISE DISPOSED
OF PURSUANT TO EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
PROMISSORY
NOTE
(Series
2007C)
$500,000
|
February
28, 2007
|
FOR VALUE
RECEIVED, the undersigned, Advanced Fiberglass Technologies, Inc.,
M & W Fiberglass, LLC and Jamie L. Mancl and Jennifer Mancl (the
“
Borrowers
,”
which term shall be construed to include the heirs, personal representatives,
and successors and assigns of the Borrowers), promise to pay to the order of the
CITY OF WISCONSIN RAPIDS, WISCONSIN, a municipality existing under the laws of
the State of Wisconsin (the “
Issuer
”), the
principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) (or so much as may
have been requisitioned under that certain Bond Agreement (the “
Bond Agreement
”)
dated February 28, 2007 by and among the Issuer, the Borrowers, Nekoosa Port
Edwards State Bank, Nekoosa, Wisconsin, as Trustee, and Nekoosa Port Edwards
State Bank, Nekoosa, Wisconsin, as Original Purchaser, which Bond Agreement
secures the Bonds referenced above), payable in the same installments of
principal and interest, due on the same dates and at the same interest rates and
premiums, as are set forth for the Bonds in the Bond Agreement.
This
Promissory Note constitutes the Promissory Note issued under the Bond Agreement,
which Bond Agreement is hereby incorporated herein by this
reference. Reference is hereby made to the Bond Agreement for a
statement of the terms and conditions on which the Loan evidenced hereby was
made, for a description of the circumstances under which there shall be credits
allowed against the installments of principal and interest on this Promissory
Note, and for a description of the terms and conditions upon which this
Promissory Note may be prepaid or its maturity accelerated.
ADVANCED FIBERGLASS
TECHNOLOGIES, INC.
,
a
Wisconsin corporation
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl,
President
|
M & W FIBERGLASS,
LLC
,
a
Wisconsin limited liability company
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl, Sole
Member
|
/s/ Jamie L.
Mancl
JAMIE L. MANCL
|
/s/ Jennifer
Mancl
JENNIFER
MANCL
|
ASSIGNMENT
FOR VALUE
RECEIVED, the undersigned, City of Wisconsin Rapids, Wisconsin, hereby assigns,
without recourse, all its right, title and interest in and to the above
Promissory Note to Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, or its
successor or successors, as Trustee under the Bond Agreement referenced
above.
Dated: February
28, 2007.
|
CITY
OF WISCONSIN RAPIDS, WISCONSIN
By:
/s/ Mary J.
Carson
Mary Jo Carson,
Mayor
By:
/s/ Vernon J.
Borth
Vernon J. Borth City
Clerk
|
EXHIBIT 10.6
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
CREDIT AGREEMENT DATED FEBRUARY 28, 2007
CREDIT
AGREEMENT
Dated as
of February 28, 2007
By and
Between
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.,
M
& W FIBERGLASS, LLC,
JAMIE
L. MANCL AND JENNIFER MANCL
AS
BORROWER
And
NEKOOSA
PORT EDWARDS STATE BANK
Relating
to:
$4,000,000
City
of Wisconsin Rapids, Wisconsin
Industrial
Development Revenue Bonds, Series 2007A, Series 2007B and Series
2007C
(Advanced
Fiberglass Technologies Project)
RECITALS
|
1
|
|
|
AGREEMENT
|
1
|
|
|
ARTICLE
I DEFINITIONS
|
1
|
|
1.01
|
Defined
Terms
|
1
|
|
1.02
|
Other
Terms
|
7
|
|
|
ARTICLE
II PURCHASE OF THE BONDS; REPAYMENT OF THE LOAN
|
7
|
|
2.01
|
Purchase
of the Bonds
|
7
|
|
2.02
|
Repayment
of the Loan
|
7
|
|
2.03
|
Yield
Protection
|
8
|
|
|
ARTICLE
III REPRESENTATIONS AND WARRANTIES
|
8
|
|
3.01
|
Organization,
Etc.
|
9
|
|
3.02
|
Authorization
|
9
|
|
3.03
|
No
Conflicting Obligations
|
9
|
|
3.04
|
No
Defaults
|
9
|
|
3.05
|
No
Litigation
|
9
|
|
3.06
|
Financial
Statements
|
9
|
|
3.07
|
Accuracy
of Information
|
9
|
|
3.08
|
Taxes
|
10
|
|
3.09
|
Property
|
10
|
|
3.10
|
Licenses,
Franchises
|
10
|
|
3.11
|
Places
of Business; Collateral
|
10
|
|
3.12
|
Other
Names
|
10
|
|
3.13
|
Federal
Reserve Regulations
|
10
|
|
3.14
|
ERISA
|
11
|
|
3.15
|
Investment
Company Act; Public Utility Holding Company Act
|
11
|
|
3.16
|
Environmental
Laws
|
11
|
|
|
ARTICLE
IV CONDITIONS PRECEDENT TO PURCHASE OF THE BONDS
|
11
|
|
4.01
|
Certain
Related Documents
|
11
|
|
4.02
|
Bond
Documents
|
11
|
|
4.03
|
Closing
Certificate
|
11
|
|
4.04
|
UCC
Searches
|
12
|
|
4.05
|
Insurance
Certificates
|
12
|
|
4.06
|
Title
Insurance
|
12
|
|
4.07
|
Survey. [Reserved]
|
12
|
|
4.08
|
Environmental
Reports
|
12
|
|
4.09
|
Counsel
Opinion
|
12
|
|
4.10
|
Real
Estate Appraisals
|
12
|
|
4.11
|
Proceedings
Satisfactory
|
13
|
|
4.12
|
Project
Compliance
|
13
|
|
4.13
|
Supporting
Documents
|
13
|
|
|
ARTICLE
IVA CONDITIONS TO BANK'S AGREEMENT TO PURCHASE BONDS AND TO FUND
BORROWER'S REQUISITIONS
|
13
|
|
4A.1
|
Construction
Contract
|
13
|
|
4A.3
|
Title
Endorsements
|
13
|
|
|
ARTICLE
V AFFIRMATIVE COVENANTS
|
13
|
|
5.01
|
Existence;
Compliance With Laws; Maintenance of Business; Taxes
|
13
|
|
5.02
|
Maintenance
of Property; Insurance
|
14
|
|
5.03
|
Financial
Statements
|
14
|
|
5.04
|
Inspection
of Property and Records/Bank Audits
|
15
|
|
5.05
|
Use
of Proceeds
|
16
|
|
5.06
|
Bank
Accounts
|
16
|
|
5.07
|
Compliance
With Other Agreements
|
16
|
|
5.08
|
Compliance
With Laws
|
16
|
|
5.09
|
Payment
of Fees and Costs
|
17
|
|
5.10
|
Project
Disbursements
|
17
|
|
5.11
|
No
Liens; Plans; Covenants, Conditions and Restrictions
|
17
|
|
5.12
|
Project
Lease
|
17
|
|
5.13
|
Key-Person
Life Insurance
|
17
|
|
5.14
|
Minimum
Tangible Net Worth
|
18
|
|
5.15
|
Debt
Service Coverage Ratio
|
18
|
|
5.16
|
Total
Indebtedness to Tangible Net Worth Ratio
|
18
|
|
5.17
|
Annual
Resting of Line of Credit
|
|
18
|
|
5.18
|
Mortgage
on After-Acquired Real Estate
|
18
|
|
|
ARTICLE
VI NEGATIVE COVENANTS
|
18
|
|
6.01
|
Sale
of Assets, Consolidation, Merger, Acquisitions, Etc.
|
18
|
|
6.02
|
Indebtedness
|
19
|
|
6.03
|
Liens
|
19
|
|
6.04
|
Guaranty
|
19
|
|
6.05
|
Loans,
Investments
|
19
|
|
6.06
|
Compliance
with ERISA
|
19
|
|
6.07
|
Restricted
Payments
|
19
|
|
6.08
|
Project
Lease – No Modification
|
20
|
|
6.09
|
Salaries
|
20
|
|
6.10
|
Change
In Control
|
20
|
|
|
ARTICLE
VII EVENTS OF DEFAULT
|
20
|
|
7.01
|
Events
of Default Defined
|
20
|
|
7.02
|
Remedies
Upon Event of Default
|
21
|
|
|
ARTICLE
VIII MISCELLANEOUS
|
22
|
|
8.01
|
Indemnity
|
22
|
|
8.02
|
Assignability;
Successors
|
22
|
|
8.03
|
Survival
|
22
|
|
8.04
|
Counterparts;
Headings
|
22
|
|
8.05
|
Entire
Agreement; Amendments
|
22
|
|
8.06
|
Notices
|
22
|
|
8.07
|
No
Waiver
|
24
|
|
8.08
|
Severability
|
24
|
|
8.09
|
Further
Assurances
|
24
|
|
8.10
|
Conflicts
and Ambiguities
|
24
|
|
8.11
|
Governing
Law
|
24
|
|
8.12
|
Consent
to Jurisdiction
|
25
|
|
8.13
|
Fees
and Expenses
|
25
|
|
8.14
|
Assignments;
Participations
|
26
|
|
8.15
|
WAIVER
OF JURY TRIAL
|
26
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
1.01(a) - Project Real Property
|
|
SCHEDULE
3.11 - Places of Business/Locations of
Collateral
|
CREDIT
AGREEMENT
THIS
CREDIT AGREEMENT, dated February 28, 2007 (this “
Agreement
”), is made
by and between ADVANCED FIBERGLASS TECHNOLOGIES, INC., a Wisconsin corporation
(the “
Corporation
”), M
& W FIBERGLASS, LLC, a Wisconsin limited liability company (the “
LLC
”), JAMIE L.
MANCL, an individual resident of the State of Wisconsin, and JENNIFER MANCL, an
individual resident of the State of Wisconsin (Jamie L. Mancl and Jennifer Mancl
being referred to herein as the “
Individual
Borrowers
”) (as used herein the term “
Borrower
” shall mean,
the Corporation, the LLC and the Individual Borrowers, individually or
collectively, as the context requires), and NEKOOSA PORT EDWARDS STATE BANK,
Nekoosa, Wisconsin, as lender and as agent for the financial institutions from
time to time parties hereto (the “
Bank
” or the “
Original
Purchaser
”).
RECITALS
A. The
City of Wisconsin Rapids, Wisconsin (the “
Issuer
”), will issue
its Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project) in the aggregate principal amount of
Four Million Dollars ($4,000,000) (the “
Bonds
”), pursuant to
a Bond Agreement dated as of February 28, 2007 (the “
Bond Agreement
”), by
and among the Issuer, the Borrower, Nekoosa Port Edwards State Bank, as trustee
(the “
Trustee
”)
and the Original Purchaser (the “
Bond
Agreement
”).
B. The
proceeds derived from the issuance of the Bonds will be loaned to the Borrowers
pursuant to the Bond Agreement, and used for (i) the construction of an
approximately 70,000 square foot manufacturing facility to be located at 4400
Commerce Drive in the City of Wisconsin Rapids, Wisconsin (the “
Facility
”) to be
owned by the LLC and leased to the Corporation and use in connection with the
Corporation’s manufacturing business; and (ii) the acquisition and
installation of equipment at the Facility (collectively (i) and (ii) are
referred to herein as the “
Project
”).
C. To
provide the funds to be loaned to the Borrowers for payment of the costs of the
Project, the Issuer has contracted for the sale of the Bonds to the Bank, and
the Bank has agreed to purchase such Bonds in reliance on Borrowers’ agreeing to
the terms and conditions set forth herein.
AGREEMENT
NOW,
THEREFORE in consideration of the premises and the mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.01
Defined
Terms
. As
used herein, the following terms shall have the following meanings:
“
Agreement
” shall mean
this Credit Agreement, as amended, restated, supplemented, modified or extended
from time to time.
“
Appraised Value
”
shall have the meaning set forth in Section 4.10.
“
Bank
” shall mean
Nekoosa Port Edwards State Bank, a Wisconsin banking corporation, and its
successors and assigns.
“
Bond Agreement
” shall
mean the Bond Agreement dated as of February 28, 2007, by and among the Issuer,
the Trustee, the Borrower and the Bank pursuant to which the Bonds shall be
issued.
“
Bond Documents
” shall
mean the Bonds, the Bond Agreement, the Promissory Note and all instruments, and
other agreements executed by the Borrower in connection with the
Bonds.
“
Bond Proceeds
” the
proceeds of the sale of the Bonds such amount not to exceed $4,000,000 as may be
advanced by the Original Purchaser under the Bond Agreement.
“
Bond Rate
” shall mean
the then-applicable interest rate on the Bonds.
“
Bond Year
” shall
mean, commencing with the Closing Date, each year ending on February 28 or
February 29 (as applicable).
“
Bonds
” shall mean the
Issuer’s Industrial Development Revenue Bonds, Series 2007A, Series 2007B and
Series 2007C (Advanced Fiberglass Technologies Project) issued on the Closing
Date, in the aggregate principal amount of Four Million Dollars
($4,000,000).
“
Borrower
” shall mean
individually or collectively, as the context requires, the Corporation, the LLC,
and the Individual Borrowers.
“
Business Day
” shall
mean a day other than a Saturday, Sunday or other day on which banks are
required or authorized to remain closed in the city in which the Bank’s
Principal Office is located.
“
Closing Date
” shall
mean February 28, 2007.
“
Code
” shall mean the
Internal Revenue Code of 1986, as amended and recodified from time to
time.
“
Collateral
” shall
mean all of the rights, interest and Property of Borrower granted to the Bank as
collateral hereunder or to the Trustee as collateral under the Bond Documents
and under the Related Documents, and all other rights, interests and Property
from time to time granted to the Bank as collateral for the payment and
performance of the Obligations.
“
Collateral Assignment of
Construction Contracts
” shall mean the Collateral Assignment of
Construction Contracts dated February 28, 2007 by Borrower in favor of the
Trustee and the Bank, as amended, restated, supplemented, modified or extended
from time to time.
“
Collateral Assignment of
Life Insurance
” shall mean the Collateral Assignment of Life Insurance
dated February 28, 2007 by Borrower in favor of the Trustee and the Bank, as
amended, restated, supplemented, modified or extended from time to
time.
“
Corporation
” shall
mean Advanced Fiberglass Technologies, Inc., a Wisconsin
corporation.
“
Debt Service Coverage
Ratio
” of any entity or entities on any date shall mean the ratio of
(i) EBITDAR for the 12-month period ending on the measurement date to
(ii) interest expenses plus principal payments coming due during the
12-month period beginning on the day after the measurement date.
“
Default
” shall mean
an event which with the giving of notice or the passage of time or both would
constitute an Event of Default.
“
Default Rate
” shall
mean a rate equal to the Bond Rate plus 3%, per annum.
“
Disbursing Agreement
”
shall mean the Disbursing Agreement dated as of February 28, 2007, among the
Borrower, the Bank, the Trustee and the Title Company, as amended, restated,
extended, supplemented or otherwise modified from time to time.
“
EBITDAR
” means
earnings before interest, taxes, depreciation, amortization and rent
expense.
“
Employer Plan
” shall
mean any pension or welfare benefit plan of Borrower.
“
Environmental Law” or
“Environmental Laws
” shall mean any local, state or federal law or other
statute, law, ordinance, rule, code, regulation, decree or order governing,
regulating or imposing liability or standards of conduct concerning the use,
treatment, generation, storage, disposal or other handling or release of any
hazardous substance, including without limitation, any pollutant, contaminant,
waste or toxic or hazardous chemicals, wastes or substances, including, without
limitation, asbestos, urea formaldehyde insulation, petroleum, PCBs, air
pollutants, water pollutants, and other substances defined as hazardous
substances or toxic substances in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9061 et
seq., Hazardous Materials Transportation Act, 49 U.S.C. § 1802, the
Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Toxic
Substance Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq., the
Solid Waste Disposal Act, 42 U.S.C. § 3251 et seq., the Clean Air Act, 42
U.S.C. § 1857 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq.,
Chapters 254, 281, 283, 285, 287, 289, 291, 292, 293, 295 and 299 of the
Wisconsin Statutes, or any other statute, rule, regulation or order of any
Government Authority having jurisdiction over the control of such wastes or
substances, including without limitation the United States Environmental
Protection Agency, the United States Nuclear Regulatory Commission, and the
State of Wisconsin.
“
Event of Default
”
shall have the meaning assigned in Section 7.01 hereof.
“
ERISA
” shall mean the
Employee Retirement Income Security Act of 1974, as amended, and any successor
statute, together with the regulations and published interpretations thereunder,
in each case as in effect from time to time.
“
GAAP
” shall mean
those generally accepted accounting principles and practices which are
recognized as such by the American Institute of Certified Public Accountants
acting through appropriate boards or committees thereof and which are
consistently applied for all periods so as to properly reflect the financial
condition, results of operations and cash flows of the Borrower.
“
Government Authority
”
shall mean any nation or government, any state or other political subdivision
thereof, and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government, and any corporation
or other entity owned or controlled through stock or capital ownership or
otherwise, by any of the foregoing.
“
Guarantor
” shall mean
Fiberglass Piping & Fitting Company, a Wisconsin corporation.
“
Guaranty
” shall mean
that certain Guaranty dated as of February 28, 2007 given by Guarantor in favor
of the Trustee and the Bank.
“
Indebtedness
” shall
mean all liabilities or obligations of Borrower, whether primary or secondary or
absolute or contingent or secured or unsecured: (a) for borrowed
money or for the deferred purchase price of property or services (excluding
trade obligations incurred in the ordinary course of business, which are not the
result of any borrowing); (b) as lessee under leases that have been or
should be capitalized according to GAAP consistently applied; (c) evidenced
by notes, bonds, debentures or similar obligations; (d) under any guaranty
or endorsement (other than in connection with the deposit and collection of
checks in the ordinary course of business), and other contingent obligations to
purchase, provide funds for payment, supply funds to invest in any Person, or
otherwise assure a creditor against loss; or (e) secured by any Liens on
assets of Borrower, whether or not the obligations secured have been assumed by
Borrower.
“
Individual Borrowers
”
shall mean Jamie Mancl and Jennifer Mancl, each an individual resident of the
State of Wisconsin.
“
Interest Payment
Date
” shall mean each date on which a payment of interest is due on the
Bonds pursuant to Section 2.02 of the Bond Agreement.
“
Issuer
” shall mean
the City of Wisconsin Rapids, a political subdivision of the State of
Wisconsin.
“
Lien” or “Liens
”
shall mean any mortgage, pledge, assignment, deposit, encumbrance, lien
(statutory or other), deed of trust, security interest, or security agreement of
kind or nature whatsoever including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or comparable law of any jurisdiction.
“
LLC
” shall mean M
& W Fiberglass, LLC, a Wisconsin limited liability company.
“
Loan
” shall mean the
loan by the Issuer to the Borrower of the Bond Proceeds.
“
Material Adverse
Effect
” shall mean (a) an Event of Default, (b) a material
adverse change in the business, property, prospects, operations or condition
(financial or otherwise) of the Borrower, (c) the termination of any
material agreement to which the Borrower is a party which has a material adverse
effect on the operations or condition of the Borrower, (d) any material
impairment of the right to carry on the business as now or proposed to be
conducted by the Borrower, or (e) any material impairment of the ability of
the Borrower to perform the Obligations under this Agreement or the Related
Documents. A Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of an individual event and all other then existing events
would result in a Material Adverse Effect.
“
Mortgage
” shall mean
that certain Construction Mortgage and Assignment of Leases and Rents dated as
of February 28, 2007 and executed pursuant to the requirements hereof by
Borrower in favor of the Trustee and the Bank which, among other things, grants
to the Trustee and the Bank a mortgage on the Project Real Property, as amended,
restated, supplemented, modified, or extended from time to time.
“
Net Income
” shall
mean for any period, the net earnings of a Person as determined according to
GAAP consistently applied, excluding the effect of (a) gains from a write
up of assets, (b) gains from the acquisition of any securities,
(c) gains resulting from the sale of any investments or capital assets,
(d) amortization of any deferred credit arising from the acquisition of any
Person, and (e) proceeds of any life insurance payable to such
Person.
“
Obligations
” shall
mean the obligation to make payments on the Promissory Note, and all mandatory
prepayments, all costs, fees and expenses, all liabilities of Borrower under the
Bond Documents, all liabilities of Borrower to the Bank, and all other
Indebtedness of Borrower to the Bank, whether or not evidenced by this
Agreement, including, without limitation, all liabilities under interest rate
swap agreements, interest rate cap agreements and interest rate collar
agreements, and all other agreements designed to protect against fluctuations in
interest rates or currency exchange rates.
“
Outstanding Bonds
”
shall mean, at any date, the aggregate principal amount of the Bonds on such
date.
“
PBGC
” shall mean the
Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title
IV of ERISA.
“
Participants
” shall
have the meaning in Section 8.14.
“
Payment Date
” shall
mean monthly on the 28
th
day of
each month commencing March 28, 2007.
“
Permitted Liens
”
shall mean, as to any Person: (a) Liens for taxes, assessments, or
governmental charges, carriers’, warehousemen’s, repairmen’s, mechanics’,
materialmen’s and other like Liens created by law, which are either not
delinquent or are being contested in good faith by appropriate proceedings which
will prevent foreclosure of such Liens, and against which adequate cash reserves
have been provided; (b) easements, restrictions, minor title irregularities
and similar matters which have no material adverse effect upon the ownership and
use of the affected Property; (c) Liens or deposits in connection with
worker’s compensation,
unemployment
insurance, social security or other insurance or to secure customs duties,
public or statutory obligations in lieu of surety, stay or appeal bonds, or to
secure performance of contracts or bids, other than contracts for the payment of
money borrowed, or deposits required by law as a condition to the transaction of
business or other Liens or deposits of a like nature made in the ordinary course
of business; (d) Liens in favor of the Bank; and (e) Liens created by
sellers of goods sold to such Person on open account, which Liens attach solely
to the goods sold and secure solely the purchase price of said goods during the
period during which said goods are in the possession of such Person on a trial
or “approval” basis and before which the purchase price for said goods becomes
due and payable.
“
Person
” shall mean an
individual, partnership, corporation, firm, enterprise, business trust, joint
stock company, trust, limited liability company, limited liability partnership
unincorporated association, joint venture, Government Authority or other entity
of whatever nature.
“
Project
” shall have
the meaning assigned in Recital B.
“
Project Lease
” shall
mean that certain Lease Agreement executed pursuant to the requirements hereof
by and between the LLC, as lessor, and the Corporation, as lessee, pursuant to
which Borrower leases the Project Real Estate to the Corporation, as amended,
restated, extended, supplemented or otherwise modified from time to
time.
“
Project Real
Property
” shall mean the real property (including improvements and
accessions thereto) described on
Schedule 1.01(a)
attached hereto.
“
Property
” shall mean
any interest of a Person in property or assets, whether real, personal, mixed,
tangible or intangible, wherever located, and whether now owned or subsequently
acquired or arising and in the products, proceeds, additions and accessions
thereof or thereto.
“
Promissory Note
”
shall mean the Promissory Notes dated as of February 28, 2007 in the principal
amounts of $3,000,000 (the “
Series A Note
”),
$500,000 (the “
Series
B Note
”), and $500,000 (the “
Series C Note
”), made
by Borrower in favor of the Issuer and assigned to the Bank, as original
purchaser of the Bonds.
“
Related Documents
”
shall mean this Agreement, the Disbursing Agreement, the Mortgage, the Security
Agreement, the Collateral Assignment of Construction Contracts, the Collateral
Assignment of Life Insurance and all other certificates, resolutions, or other
documents required or contemplated hereunder.
“
Requirements of Law
”
shall mean, as to any matter, Property or Person, the articles of incorporation
or organization and bylaws or operating agreement or other organizational or
governing documents of such Person, and any law (including, without limitation,
any zoning and Environmental Law), ordinance, treaty, rule, regulation, order,
decree, determination or other requirement having the force of law relating to
such matter or Person and, where applicable, any interpretation thereof by any
Government Authority.
“
Restricted Payments
”
shall mean, as to any Person, (a) dividends, distributions, or other
payments by such Person based upon an ownership interest in said entity, or
(b) purchases, redemptions or other acquisitions, direct or indirect, by
such Person of an ownership interest in said entity, whether now or hereafter
outstanding.
“
Security Agreement
”
shall mean the Security Agreement dated February 28, 2007, among the Borrower,
the Trustee and the Bank, all as amended, restated, supplemented, extended or
otherwise modified from time to time.
“
Subsidiary
” shall
mean, as to any Person, a corporation of which shares of stock having voting
power (other than stock having such power only by reason of the happening of a
contingency that has not occurred) sufficient to elect a majority of the board
of directors or other managers of such corporation are at the time owned, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by such Person.
“
Tangible Net Worth
”
shall mean (1) the total of all of Corporation’s assets, excluding any
noncompetition agreements, capitalized acquisition costs, goodwill and other
intangibles, minus (2) the aggregate of all Corporation’s liabilities and
reserves of every kind and character, all determined in accordance with
generally accepted accounting principles consistent with those followed in
preparation of the financial statements described in Section 5.03
hereof.
“
Title Company
” shall
mean Goetz Abstract & Title, Inc., as agent for Chicago Title Insurance
Company, 132 1
st
Street
North, Wisconsin Rapids, WI 54494, and its successors and
assigns.
“
Trustee
” shall mean
any trustee under the Bond Agreement from time to time, initially Nekoosa Port
Edwards State Bank.
“
UCC
” shall mean the
Uniform Commercial Code of the State of Wisconsin, as amended from time to
time.
1.02
Other
Terms
. Any
capitalized terms used herein which are not defined shall have the meaning given
such terms in the Bond Agreement. Terms defined in other Sections of
this Agreement shall have the meanings set forth therein.
ARTICLE II
PURCHASE OF THE BONDS;
REPAYMENT OF THE LOAN
2.01
Purchase of the
Bonds
. On
the Closing Date, the Issuer will issue the Bonds and lend the Loan to the
Borrower and the Borrower will borrow the Loan from the Issuer, upon the terms
and conditions set forth in the Bond Documents the amount (not to exceed)
$4,000,000 of Bond Proceeds and cause such Bond Proceeds to be credited to the
Project Fund for disbursement by the Trustee in accordance with
Sections 3.01 and 4.02 of the Bond Agreement. The Loan shall be
evidenced by the Promissory Note. The outstanding principal amount of
the Loan shall at all times be equal to the principal amount of the Outstanding
Bonds.
2.02
Repayment of the
Loan
. The
Borrower will pay to the Trustee at its Principal Office for the account of the
Issuer, and for deposit in the Bond Fund, in immediately available
funds on
the last Business Day of each month the exact amount of interest and principal
payable on each Payment Date in accordance with the Promissory Note and those
provisions of Article IV of the Bond Agreement. This section
shall be construed so that the Borrower’s obligation, pursuant to this section,
shall never be more than to have on deposit in the Bond Fund on any Payment Date
the exact amount of principal and interest due on the Bonds on that Payment Date
(except for the amount of additional payments required by Section 4.07 of
the Bond Agreement, amounts necessary to provide for the mandatory redemption of
Bonds at the time and in the manner provided in the Bond Agreement, including
upon acceleration of the Loan pursuant to Section 9.03 of the Bond
Agreement). In the event that the Borrower should fail to make any of
the payments required in this subsection, the item so in default shall continue
as an obligation of the Borrower until the amount in default shall have been
fully paid, and the Borrower agrees to pay such amount with interest thereon
(including, to the extent permitted by law, interest on the overdue installments
of interest) at the Default Rate.
2.03
Yield
Protection
. If,
after the Closing Date, the adoption of or any change in any Requirement of Law
or the compliance of the Bank therewith:
(a)
subjects
the Bank to any tax, duty, charge or withholding on or from payments due from
the Borrower (excluding net income taxes and franchise taxes or any other tax
based upon income imposed upon the Bank by the jurisdiction in which the Bank is
incorporated or has its principal place of business), or changes the basis of
taxation of principal, interest, fees or any other payments to the Bank in
respect of this Agreement or any other Related Agreement, or
(b)
imposes
or increases or deems applicable any reserve, assessment, insurance charge,
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Bank, or
(c)
imposes
any other condition the result of which is to increase the cost to the Bank of
holding and owning the Bonds and the extensions of credit and accommodations
contemplated by this Agreement or any Related Document, or reduces any amount
receivable by the Bank in connection therewith, or requires the Bank to make any
payment calculated by reference to the Outstanding Bonds, or amounts received by
the Bank, by an amount deemed material by the Bank, then, within ten (10) days
of demand by the Bank, the Borrower agrees that they shall pay the Bank that
portion of such increased expense incurred or resulting in an amount received
which the Bank determines is attributable to receiving any such payment or
holding or owning the Outstanding Bonds.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES
In order
to induce the Bank to purchase the Bonds as provided herein, Borrower represents
and warrants to the Bank that all of the matters set forth (or incorporated by
reference) in the Bond Agreement are true and correct, and further represents
and warrants to the Bank as follows:
3.01
Organization,
Etc.
The
Corporation is a corporation duly formed, and validly existing under the laws of
the State of Wisconsin. The LLC is a limited liability company duly
organized, and validly existing under the laws of the State of
Wisconsin. Each Borrower has the requisite power and authority and
all necessary licenses, permits and franchises to execute and deliver, and to
perform its obligations under, this Agreement and each of the Related Documents
and Bond Documents to which it is a party, and to grant the liens and security
interests provided for in this Agreement and the Related Documents and to own
its assets and conduct its business as presently conducted.
3.02
Authorization
. The
making, execution, delivery and performance of this Agreement the Related
Documents by each Borrower are within the powers of such Borrower, and have been
duly authorized by all necessary action on the part of such
Borrower. The valid execution, delivery and performance of this
Agreement and the Related Documents by each Borrower and the consummation of the
transactions contemplated hereby and thereby: (a) do not and
will not violate any term or provision of any Requirement of Law; and
(b) are not and will not be subject to any approval, consent or
authorization of any Person or Government Authority, other than those approvals,
consents or authorizations that have already been obtained and remain in full
force and effect. This Agreement and the Related Documents are the
valid and binding obligations of each Borrower, enforceable against each
Borrower in accordance with their respective terms.
3.03
No Conflicting
Obligations
. The
making, execution, delivery and performance of this Agreement and the Related
Documents and compliance with their respective terms do not violate or
constitute a default, breach or violation under any Requirements of Law or any
covenant, Bond Agreement, deed, lease, contract, agreement, mortgage, deed of
trust, note or instrument to which any Borrower is a party or by which it or its
Property is bound.
3.04
No
Defaults
. No
Borrower is in default under or in violation of (a) any Requirements of
Law, (b) any covenant, indenture, deed, lease, agreement, mortgage, deed of
trust, note or other instrument to which such Borrower is a party or by which
such Borrower or its Property is bound, or (c) any
Indebtedness.
3.05
No
Litigation
. There
is no pending or, to the knowledge of any Borrower, threatened litigation or
administrative proceeding at law or in equity which would, if adversely
determined, result in a Material Adverse Effect, and, to the best of each
Borrower’s knowledge after diligent inquiry, there are no presently existing
facts or circumstances likely to give rise to any such litigation or
administrative proceeding.
3.06
Financial
Statements
. The
tax returns and financial statements which each Borrower previously provided to
the Bank are accurate and complete. There has been no Material
Adverse Effect since the date of the latest of such statements. Each
entity Borrower’s Fiscal Year ends on December 31 of each year.
3.07
Accuracy of
Information
. All
information, certificates, forecasts, or statements given by Borrower to the
Bank under this Agreement and the Related Documents were accurate, true and
complete in all material respects when given, continue to be accurate, true and
complete in all material respects as of the date hereof, and do not contain any
untrue statement or omission
of a
material fact necessary to make the statements herein or therein not
misleading. There is no fact known to any Borrower which is not set
forth in this Agreement, the Related Documents, the Bond Documents or other
documents, certificates, forecasts, or statements furnished to the Bank by or on
behalf of any Borrower in connection with the transactions contemplated hereby
which will, or which in the future may (so far as any Borrower can reasonably
foresee), cause a Material Adverse Effect.
3.08
Taxes
. Each
Borrower has filed all federal, state, foreign and local tax returns which were
required to be filed, except those returns for which the due date has been
validly extended. Each Borrower has paid or made provisions for the
payment of all taxes, assessments, fees and other governmental charges owed, and
no tax deficiencies have been proposed, threatened or assessed against any
Borrower. There is no pending or, to the best of each Borrower’s
knowledge, threatened tax controversy or dispute as of the date
hereof.
3.09
Property
. Each
Borrower has good and marketable title to all of its Property, including without
limitation, the Property reflected in its balance sheets referred to in
Section 3.06. There are no Liens of any nature on any of the
Property except Permitted Liens. All Property useful or necessary in
each Borrower’s business, whether leased or owned, is in good condition, repair
(ordinary wear and tear excepted) and working order and, to the best of each
Borrower’s knowledge after diligent inquiry, conforms to all applicable
Requirements of Law. Each Borrower owns (or is licensed to use) and
possesses all such patents, trademarks, trade names, service marks, copyrights
and rights with respect to the foregoing as are reasonably necessary for the
conduct of the business of such Borrower as now conducted and proposed to be
conducted without, individually or in the aggregate, any material infringement
upon rights of other Persons.
3.10
Licenses,
Franchises
. Each
Borrower has all authorizations, licenses, permits and franchises of any
Governmental Authority which are necessary for the conduct of its business as
now conducted and as proposed to be conducted. All of such
authorizations, licenses, permits and franchises are validly issued and in full
force and effect, and each Borrower has fulfilled and performed in all material
respects all of its obligations with respect thereto and has full power and
authority to operate thereunder.
3.11
Places of Business;
Collateral
. The
principal places of business and chief executive offices of each Borrower are
located at the addresses specified on Schedule 3.11, and the books and
records of each Borrower and all records of account are located and hereafter
shall continue to be located at such principal place of business and chief
executive office. All locations where collateral may be maintained
are set forth on Schedule 3.11.
3.12
Other
Names
. No
Borrower has conducted business under any corporate, trade, “dba”, or fictitious
names.
3.13
Federal Reserve
Regulations
. No
Borrower will directly or indirectly, use any proceeds of the Bonds to:
(a) purchase or carry any “margin stock” within the meaning of
Regulations U, G, T or X of the Board of Governors of the Federal Reserve
System (12 C.F.R. Parts 221 and 224, as amended); (b) extend credit to
other Persons for any such purpose or refund indebtedness originally incurred
for any such purpose; or (c) otherwise take or permit any
action
which would involve a violation of Section 7 of the Securities Exchange Act
of 1934, as amended, or any regulation of the Board of Governors of the Federal
Reserve System.
3.14
ERISA
. Each
Borrower and anyone under common control with such Borrower under
Section 4001(b) of ERISA is in compliance in all respects with the
applicable provisions of ERISA and: (a) no “prohibited transaction” as
defined in Section 406 of ERISA or Section 4975 of the Code has
occurred; (b) no “reportable event” as defined in Section 4043 of
ERISA has occurred; (c) no “accumulated funding deficiency” as defined in
Section 302 of ERISA (whether or not waived) has occurred; (d) there
are no unfunded vested liabilities of any Employer Plan administered by any
Borrower; and (e) each Borrower or the plan sponsor has timely filed all
returns and reports required to be filed for each Employer Plan.
3.15
Investment Company Act;
Public Utility Holding Company Act
. No
Borrower is: (a) an “investment company” or a company
“controlled by an investment company” within the meaning of the Investment
Company Act of 1940, as amended; or (b) a “holding company” or a
“subsidiary” of a “holding company” or an “affiliate of a “holding company” or a
“subsidiary” of a “holding company” within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
3.16
Environmental
Laws
. The
business of each Borrower has been operated in full compliance in all respects
with all Environmental Laws, and no Borrower is subject to liability under any
Environmental Law relating to the conduct of its business or the ownership of
its Property and no facts or circumstances exist which could give rise to such
liabilities. No notice has been served on any Borrower claiming any
violation of Environmental Laws, asserting any liability under an Environmental
Law, or demanding payment or contribution for a liability under an Environmental
Law.
ARTICLE IV
CONDITIONS PRECEDENT TO
PURCHASE OF THE BONDS
In
addition to the terms and conditions otherwise contained herein, the obligation
of the Bank to purchase the Bonds is conditioned upon the Bank receiving each of
the following items in form, detail and content satisfactory to the
Bank:
4.01
Certain Related
Documents
. The
execution and delivery of this Agreement, the Security Agreement, the Guaranty,
the Mortgage, the Disbursing Agreement, the Collateral Assignment of
Construction Contracts, the Collateral Assignment of Life Insurance, and all
other certificates, resolutions, or other documents required or completed
hereunder.
4.02
Bond
Documents
. The
execution and delivery of the Bond Documents and the issuance and sale of the
Bonds.
4.03
Closing
Certificate
. Closing
certificates from Borrower in form and substance acceptable to the
Bank.
4.04
UCC
Searches
. A UCC
report certified to by the Department of Financial Institutions of the State of
Wisconsin indicating that no Borrower’s Property is subject to any security
interest other than the Permitted Liens.
4.05
Insurance
Certificates
.
Certificates of Borrower’s insurance coverages, showing insurance protection as
required by this Agreement and the Related Documents.
4.06
Title
Insurance
. Delivery
to the Bank of commitments for mortgage title insurance issued by a title
insurance company acceptable to the Bank under a current ALTA
form: (i) insuring that the LLC has a fee simple estate in the
Project Real Property, subject to the Mortgage; (ii) insuring that the
Mortgage is a valid paramount lien on the Project Real Property in an amount of
$4,000,000, subject only to Permitted Liens; (iii) insuring against loss or
damage incurred by reason of construction liens which are or may be prior to the
lien of the Mortgage; (iv) excluding any exceptions for rights of parties
in possession or matters which would be disclosed by surveys of the Project Real
Property; and (v) containing gap and such other endorsements as the Bank
may request.
4.07
Survey. [Reserved]
.
4.08
Environmental
Reports
. Receipt
by the Bank of such environmental reports and site assessments with respect to
the Project Real Property (including, without limitation, Phase I and other
environmental inspections and soil tests) as the Bank may request, and receipt
by the Bank of a completed environmental questionnaire with respect to the
Project Real Property in such form as the Bank may request and satisfactory to
the Bank in all respects.
4.09
Counsel
Opinion
. Receipt
by the Bank, from Haferman & Ilten, Stevens Point, Wisconsin, counsel to the
Borrower, of satisfactory opinions as to (a) the due authorization,
execution and delivery of this Agreement; (b) the other matters referred to
in Sections 3.01, 3.02 and 3.03; and (c) such other matters relating
to each Borrower and the validity and enforceability of this Agreement and the
Related Documents as the Bank shall reasonably require; and the Bank shall have
received from Whyte Hirschboeck Dudek S.C., Milwaukee, Wisconsin, bond counsel;
(x) an approving opinion regarding the Bonds, including an opinion
confirming the tax exempt status of interest on the Bonds; and (y) an
opinion that the Bonds are exempt from registration under the Securities Act of
1933, as amended.
4.10
Real Estate
Appraisals
. Receipt
by the Bank of an as-built appraisal of the Project Real Property, prepared by
an appraiser licensed in the State of Wisconsin selected by the Bank, which
appraisal shall be addressed to the Bank, conform with applicable Requirements
of Law as to form and content, be in form and substance satisfactory to the
Bank, and reflect an appraised value of the Project Real Property equal to or
more than $4,000,000 (the “
Appraised
Value
”).
Bank acknowledges
receipt of an appraisal acceptable to it in form and content.
4.11
Proceedings
Satisfactory
. All
proceedings taken in connection with the transactions contemplated by this
Agreement, the applicable Related Documents and the Bond Documents, and all
instruments, authorizations and other documents applicable thereto, shall be
satisfactory in form and substance to the Bank and its counsel.
4.12
Project
Compliance
. Borrower
providing Bank evidence in form satisfactory to Bank the following:
(i) proof the Project is in compliance with all applicable zoning laws,
regulations and ordinances; (ii) a complete set of final working plans and
specifications of the Project indicating conformance with all current state,
federal, and local laws, codes, regulations, and ordinances (including handicap
access regulations), and indicating a level of quality of the Project acceptable
to Bank; and (iii) a complete cost breakdown of the Project on standard
breakdown sheets, along with a copy of the major contracts and subcontracts for
the Project.
4.13
Supporting
Documents
. Such
additional supporting documents and materials as the Bank may request from the
Borrower.
ARTICLE IVA
CONDITIONS TO BANK’S
AGREEMENT TO PURCHASE BONDS
AND TO FUND BORROWER’S
REQUISITIONS
In
addition to the conditions otherwise contained herein, in the Bond Agreement and
in the Disbursing Agreement, provided no Default or Event of Default exists
hereunder and the representations and warranties of the Borrower hereunder and
under the Related Documents shall be true and correct in all material respects
at the time of such Requisition, the obligation of the Bank to purchase Bonds,
and to fund Borrower’s Requisitions, is conditioned upon the Bank receiving each
of the following items in form, detail and content satisfactory to the Bank, on
or prior to the times indicated in the following:
4A.1
Construction
Contract
. Prior to disbursements for construction of the Project, the
Bank shall receive a Collateral Assignment of Construction Contract acknowledged
by the contractor, in form and content satisfactory to the Bank in its sole
discretion.
4A.2
Title Endorsements
.
Prior to disbursements for construction of the Project, the Bank shall receive
such additional endorsements to the title insurance commitment, including,
access, contiguity, comprehensive Form 9 endorsements, and such other
endorsements as the Bank may request, which endorsements may require an ALTA
certified survey.
ARTICLE V
AFFIRMATIVE
COVENANTS
While any
Bonds or Obligations remain outstanding, each Borrower (as applicable) covenants
that it shall, unless otherwise waived or consented to in writing by the
Bank:
5.01
Existence; Compliance With
Laws; Maintenance of Business; Taxes
.
(a)
Maintain
its existence;
(b)
Maintain
all licenses, permits, rights and franchises reasonably necessary for the
current and planned conduct of its business;
(c)
Comply in
all respects with all Requirements of Law;
(d)
Conduct
its business substantially as now conducted and proposed to be conducted;
and
(e)
Pay
before the same become delinquent and before penalties accrue thereon, all
taxes, assessments and other government charges against it and its Property, and
all other liabilities except to the extent and so long as the same are being
contested in good faith by appropriate proceedings, with adequate reserves
having been provided.
5.02
Maintenance of Property;
Insurance
.
(a)
Keep all
Property useful and necessary in its business, whether leased or owned, in good
condition, repair and working order (ordinary wear and tear excepted) and from
time to time make or cause to be made all needed and proper repairs, renewals,
replacements, additions and improvements so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times.
(b)
Maintain
with good, reputable and financially sound insurance underwriters insurance of
such nature and in such amounts as is customarily maintained by Persons engaged
in the same or similar business of comparable size to Borrower and such other
insurance as may be required by law or as may be reasonably required in writing
by the Bank. Without limiting the foregoing, Borrower shall obtain
and provide to Bank a current builder’s risk insurance policy in an amount equal
to the total construction cost of the Project Real Property (naming Bank as
mortgagee), comprehensive general liability insurance, and workers compensation
insurance covering all personnel working on the Project, hazard insurance
insuring the Project Real Property against loss by fire, lightning, vandalism,
malicious mischief and other risks customarily covered by a standard extended
coverage endorsement, in an amount not less than the full insurable value of the
Project and naming Bank as mortgagee and lender’s loss payee. Unless
otherwise indicated above, each policy providing liability coverage to the
Borrower shall name the Bank as an additional insured, and each property
insurance policy insuring the Project Real Property and any business
interruption insurance shall name the Bank as an additional loss payee, as its
interest appears. All policies shall require the insurer to give the
Bank 30 days’ prior written notice of the modification, cancellation or
nonrenewal of the policy and contain a lender’s loss payable endorsement in
favor of Bank satisfactory to Bank. The Borrower shall furnish copies
of all such insurance policies or a certificate evidencing that the Borrower
have complied with the requirements of this paragraph on the date hereof and on
each renewal date of such policies.
5.03
Financial
Statements
. Maintain
a standard and modern system of accounting in accordance with sound accounting
practice, and furnish to the Bank such information respecting
the
business, assets and financial condition of each Borrower, as Bank may
reasonably request and, without request furnish to Bank:
(a)
as soon
as available, and in any event within 120 days after the close of each fiscal
year, each Borrower shall provide Bank a copy of the tax return for such year as
of the end of such fiscal year for such Borrower;
(b)
as soon
as available, and in any event within 120 days after the end of each fiscal
year, consolidated and consolidating financial statements for the Corporation
for each fiscal year, prepared in accordance with GAAP, and compiled by
independent accountants acceptable to bank;
(c)
as soon
as available, and in any event within 120 days after the end of each fiscal
year, internally prepared financial statements for the LLC for such fiscal
year;
(d)
as soon
as available, and in any event within 30 days after the end of each fiscal
quarter, consolidated and consolidating financial statements for the Corporation
for each fiscal quarter, prepared in accordance with GAAP, all in reasonable
detail and certified as true and correct, subject to review and normal year end
adjustments, by the chief financial officer of Corporation;
(e)
as soon
as available, and in any event within 120 days after the end of each calendar
year, a personal financial statement and tax return for the Individual
Borrowers;
(f)
as soon
as available, and in any event within 120 days after the end of each fiscal
year, internally prepared financial statements for the Guarantor;
(g)
promptly
upon learning of the occurrence of any of the following, written notice thereof
to Bank, describing the same and the steps being taken with respect thereto:
(i) the occurrence of any Default, (ii) the institution of, or any
materially adverse determination or development in, any material litigation,
arbitration proceeding or governmental proceeding, (iii) the occurrence of
a “reportable event” under, or the institution of steps by any Borrower to
withdraw from, or the institution of any steps to terminate, any Employer Plan
as to which a Borrower may have liability, (iv) the commencement of any
dispute with a third party which might lead to the modification, transfer,
revocation, suspension or termination of this Agreement or any Related Document,
or (v) any event which would have a Material Adverse Effect.
5.04
Inspection of Property and
Records/Bank Audits
. At
any reasonable time following reasonable notice (and as often as may be
reasonably desired), permit representatives of Bank to visit the Project Real
Property, examine its Property, books and records and discuss its affairs,
finances and accounts with its officers or members (as applicable) and
independent certified public accountants (who shall be instructed by the
Borrower to make available to Bank the work papers of such accountants) and
Borrower shall facilitate such inspections and examinations.
5.05
Use of
Proceeds
. Use
the entire proceeds of the Bonds solely for the purposes set forth in Recital B
hereto and within three (3) years of the date hereof. The amount used
for the Project shall not exceed the lesser of (i) $4,000,000, or
(iii) 100% of the construction cost of the Project plus the acquisition
cost of the Project for equipment at the Facility. The amount used
for issuance and other eligible costs shall not exceed $80,000.
5.06
Bank
Accounts
. Maintain
its primary deposit and operating accounts with Bank.
5.07
Compliance With Other
Agreements
. Comply
with, pay and discharge all existing notes, mortgages, deeds of trust, leases,
indentures and any other contractual arrangements to which such Borrower is a
party (including, without limitation, all Indebtedness) in accordance with the
respective terms of such instruments so as to prevent any default
thereunder.
5.08
Compliance With
Laws.
(a)
Comply in
all respects with all Requirements of Law.
(b)
Maintain
at all times all permits, licenses and other authorizations required under
Environmental Laws, and comply in all respects with all terms and conditions of
the required permits, licenses and authorizations and all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws.
(c)
Notify
the Bank promptly upon obtaining knowledge that (i) any Property previously
or presently owned or operated is the subject of an environmental investigation
by any Government Authority having jurisdiction over the enforcement of
Environmental Laws or other potential claim or notice of threatened litigation
or violation of a Requirement of Law, (ii) any Borrower has been or may be
named as a responsible party subject to liability under any Environmental Laws,
or (iii) any hazardous substance is located on any Property except in
compliance with all Requirements of Law.
(d)
At any
reasonable time following reasonable notice and as often as may be reasonably
desired, permit the Bank or an independent consultant selected by the Bank to
conduct an environmental audit satisfactory to the Bank for the purpose of
determining whether Borrower and its Property comply with Environmental Laws and
whether there exists any condition or circumstance which may require a cleanup,
removal or other remedial action by Borrower with respect to any hazardous
substance. Borrower shall facilitate such environmental
audit. The Bank shall provide Borrower, at the request of the
Borrower, with all reports and findings but the Borrower may not rely on such
environmental audit for any purpose. Any such environmental audit of
the Borrower’s Property shall be at the expense of the Borrower at any time
following an Event of Default or upon the occurrence of an event described in
Section 5.08(c);
provided
,
however
, that the
Bank’s environmental audit shall not be at the Borrower’s expense if (i) a
Government Authority or a firm or firms of geotechnical engineers and/or
environmental consultants hired by Borrower and reasonably acceptable to the
Bank shall undertake to make an environmental audit, and (ii) the Borrower
shall provide the Bank
at the
Borrower’s expense with, and the Bank shall be entitled to rely on, all reports
and findings of such Government Authority or geotechnical engineers as soon as
such reports and findings are made available to the Borrower.
5.09
Payment of Fees and
Costs
.
(a)
Pay the
Bank all additional costs including, without limitation, wire transfer or other
charges pertaining to the transfer of funds.
(b)
Pay
immediately upon receipt of an invoice all reasonable fees and expenses incurred
by the Bank with respect to negotiation, preparation and execution of this
Agreement and the Related Documents, and any amendments thereof and supplements
thereto, including, without limitation, appraisal fees, environmental inspection
fees, and the reasonable fees of in-house and outside counsel.
(c)
Pay
immediately upon receipt of an invoice all reasonable fees and expenses incurred
by the Bank with respect to protection or enforcement (including collection and
disposition of Collateral) of the Bank’s rights under this Agreement and the
Related Documents, and all costs and expenses which may be incurred by the Bank
with respect to an Event of Default as provided in Section 7.02, including,
without limitation, reasonable fees of in-house and outside legal
counsel.
5.10
Project
Disbursements
. Assure
that all disbursements for the Project are submitted and made through the Title
Company in accordance with the Disbursing Agreement with construction
endorsements satisfactory to Bank, and that all progress payments requested will
be on forms satisfactory to Bank, and that prior to disbursement, construction
progress will be verified to satisfy Bank that costs are and will be within
budget.
5.11
No Liens; Plans; Covenants,
Conditions and Restrictions
. Complete
the Project so that the Project is free from Liens (except for Permitted Liens),
built in accordance with the plans and specifications approved by Bank, and if
requested by Bank, pay for and consent to Bank retaining an inspecting engineer
to review the plans and specifications of the Project and to review and approve
all draws, and completed in compliance with all covenants, conditions and
restrictions on the Property.
5.12
Project
Lease
. Upon
the receipt of the certificate of occupancy for the Project, the LLC, as
landlord, and the Corporation, as tenant, shall execute the Project Lease, which
lease shall be in form and substance satisfactory to Bank.
5.13
Key-Person Life
Insurance
. Maintain
Key Person life insurance on the life of Jamie L. Mancl in an amount not less
than $4,000,000 good, reputable and financially sound insurance underwriters
insurance of such nature. Such policy shall name Bank as mortgagee
and lender’s loss payee and shall require the insurer to give the Bank 30 days’
prior written notice of the modification, cancellation or nonrenewal of the
policy. The Borrower shall furnish copies of such insurance policy or
a certificate evidencing that the Borrower has complied with the requirements of
this paragraph on the date hereof and on each renewal date of such
policies.
5.14
Minimum Tangible Net
Worth
. Commencing
for the fiscal year ended December 31, 2007 and each fiscal year
thereafter, the Corporation shall maintain a Tangible Net Worth of not less than
$600,000 for 2007, and increasing annually by an amount equal to sixty percent
(60%) of the Corporation’s Net Income, tested at the end of each fiscal
year.
5.15
Debt Service Coverage
Ratio
. The
Corporation shall at all times maintain a Debt Service Coverage Ratio measured
as of the last day of each fiscal quarter of not less than
1.25:1.0.
5.16
Total Indebtedness to
Tangible Net Worth Ratio
. The
Corporation shall at all times maintain a total Indebtedness to Tangible Net
Worth Ratio measured as of the last day of each fiscal quarter of not more than
3.50:1.0.
5.17
Annual Resting of Line of
Credit
. As
a condition for Borrower’s line of credit facility with Lender, Borrower agrees
to rest the line of credit and leave at zero (0) dollars the balance owing
thereunder for a period of not less than thirty (30) consecutive days
annually.
5.18
Mortgage on After-Acquired
Real Estate
. The
Borrower shall grant a first priority mortgage in favor of Trustee and Original
Purchaser on any real estate acquired after the Closing Date, including Lot 2 of
CSM 8590, City of Wisconsin Rapids, Wood County, Wisconsin, upon the acquisition
of such real estate.
ARTICLE VI
NEGATIVE
COVENANTS
Each
Borrower covenants and agrees that, from and after the date of this Agreement
and until the entire amount of the Obligations are paid in full and satisfied
and no Bonds remain Outstanding, such Borrower shall not take any of the
following actions:
6.01
Sale of Assets,
Consolidation, Merger, Acquisitions, Etc.
(a) Except
for sales of inventory in the ordinary course of business, sell, transfer,
convey, or lease all or substantially all of its Property; (b) except for
the Project Lease with the Corporation for sales of obsolete or worn out
equipment in the ordinary course of business, sell, transfer, lease all or any
part of the Project Real Property; (c) consolidate or merge with or into
any other Person; (d) directly or indirectly, sell or transfer any
Property, used or useful in its business, and thereafter lease such Property or
other Property which it intends to use for substantially the same purposes;
(e) create a Subsidiary; (f) purchase or otherwise acquire all or
substantially all of the assets or stock of any Person; (g) enter into any
joint venture; or (h) amend its articles of organization or operating
agreement.
6.02
Indebtedness
. Issue,
create, incur, assume, guaranty or otherwise become liable with respect to (or
agree to issue, create, incur, assume, guaranty or otherwise become liable with
respect to), or permit to remain outstanding, any Indebtedness
except: (a) the Obligations; (b) current liabilities (other
than for borrowed money) of Borrower incurred in the ordinary course of business
which are not more than ninety (90) days overdue, unless being contested in good
faith and with due diligence; (c) Indebtedness to the Issuer related to the
Bonds; and (d) purchase money Indebtedness secured by Permitted
Liens.
6.03
Liens
. Create
or permit to be created or allow to exist any Lien upon or interest in any
Property of Borrower except Permitted Liens.
6.04
Guaranty
. Guaranty
or otherwise in any way become or be responsible for obligations of any other
Person, directly or indirectly, including any agreement to purchase the
indebtedness of any other Person, agreement for the furnishing of funds to any
other Person through the purchase of goods, supplies or services, an agreement
for stock purchase or capital contribution or any other agreement or undertaking
to pay or discharge the indebtedness of any Person, or otherwise, except for the
endorsement of negotiable instruments by Borrower for deposit or collection or
similar transactions in the ordinary course of business.
6.05
Loans,
Investments
. Make
or commit to make advances, loans, extensions of credit or capital contributions
to, or purchases of any stock, bonds, notes, debentures or other securities of,
or make any other investment in, any Person
except: (a) accounts, chattel paper, and notes receivable
created by Borrower in the ordinary course of business; (b) extensions of
credit to customers of Borrower in the ordinary course of business and
consistent with past practice, (c) investments in bank certificates of
deposit (but only with FDIC-insured commercial banks having a combined capital
and surplus in excess of $20,000,000), open market commercial paper maturing
within one year having the highest rating of either Standard & Poors Rating
Service or Moody’s Investors Services, Inc., U.S. Treasury Bills subject to
repurchase agreements and short-term obligations issued or guaranteed by the
U.S. Government or any agency thereof; and (d) investments in open-end
diversified investment companies of recognized financial standing investing
solely in short-term money market instruments consisting of securities issued or
guaranteed by the United States government, its agencies or instrumentalities,
time deposits and certificates of deposit issued by domestic banks or London
branches of domestic banks, bankers acceptances, repurchase agreements, high
grade commercial paper and the like.
6.06
Compliance with
ERISA
.
(a) Terminate
any Employer Plan so as to result in any material liability to PBGC;
(b) engage in any “prohibited transaction” (as defined in Section 4975
of the Code) involving any Employer Plan which would result in a material
liability for an excise tax or civil penalty in connection therewith; or
(c) incur or suffer to exist any material “accumulated funding deficiency”
(as defined in Section 302 of ERISA), whether or not waived, involving any
condition, which presents a risk of incurring a material liability to PBGC by
reason of termination of any such Employer Plan.
6.07
Restricted
Payments
. Without
the Bank’s consent, make any Restricted Payments; provided, however, that, so
long as no Default has occurred and is continuing or will occur as a result of
any such payment, each Borrower may pay distributions to its members or
shareholders
(as applicable) for each member’s or shareholder’s state and federal tax
liability for such member’s interest in such Borrower.
6.08
Project Lease – No
Modification
. Modify
or amend the Project Lease, after the same has been approved by the Bank and
executed by the Corporation and the LLC.
6.09
Salaries
. Pay
officer compensation in excess of $90,000 annually or otherwise excessive or
unreasonable salaries, bonuses, commissions, consultant fees, or other
compensation.
6.10
Change In
Control
. Make
no changes in the current ownership structure or management of either entity
Borrower, without Bank’s consent.
ARTICLE VII
EVENTS OF
DEFAULT
7.01
Events of Default
Defined
. The
occurrence of any one or more of the following shall constitute an “Event of
Default”:
(a)
Failure
to pay any of the Obligations when and as the same shall become due and payable,
whether upon demand, at maturity, by acceleration or otherwise;
(b)
Any
Borrower fails to observe or perform any of the covenants, agreements or
conditions contained in Article VI;
(c)
Any
Borrower fails to observe or perform any of the other covenants, agreements or
conditions contained in Article V which failure continues for a period of
thirty (30) days following the delivery of written notice by the Bank specifying
the existence of the default;
(d)
Any
representation or warranty made by a Borrower herein or in any Related Document,
or in any certificate, document or financial statement delivered to the Bank
pursuant hereto or thereto shall prove to have been incorrect in any material
respect as of the time when made or given;
(e)
This
Agreement or any of the Related Documents shall at any time cease to be in full
force and effect, or any Borrower attempts to revoke or terminate this Agreement
or any Related Document;
(f)
A final
judgment (or judgments) shall be entered against any Borrower which singularly
or when added to any other outstanding final judgment (or judgments) against
such Borrower exceeds the aggregate amount of $10,000, and such judgment (or
judgments) shall remain outstanding and unsatisfied, unbonded, uninsured or
unstayed after thirty days from the date of entry thereof;
(g)
Any
Borrower: (i) becomes insolvent; or (ii) is unable, or
admits in writing its, his or her inability, to pay its, his or her debts as
they mature; or (iii) makes a general assignment for the benefit of
creditors or to an agent authorized to liquidate any
substantial
amount of its Property; or (iv) becomes the subject of an “Order for
Relief’ as said term is defined under the United States Bankruptcy Code; or
(v) files an answer to a creditor’s petition admitting the material
allegations thereof for reorganization or to effect a plan or other arrangement
with creditors; or (vi) apply to a court for the appointment of a receiver
for any assets; or (vii) has a receiver appointed for any of its, his or
her assets (with or without the consent of such Borrower) and such receiver
shall not be discharged within ninety (90) days after the appointment; or
(viii) otherwise becomes the subject of any insolvency proceeding or an
out-of-court settlement with its creditors, not in the ordinary course of
business;
(h)
Either
Borrower (that is an entity) is dissolved or gives notice of dissolution to any
claimant;
(i)
Any
Borrower defaults (as principal or guarantor or otherwise) either in the payment
of the principal of or interest on any other Indebtedness, or with respect to
any of the provisions of any evidence of such Indebtedness or any agreement
under which such evidence of Indebtedness may have been issued or secured, and
such default shall continue for more than any period of grace, if any, specified
in such instrument;
(j)
This
Agreement or any of the Related Documents shall at any time cease to be in full
force and effect, or any Borrower attempts to revoke or terminate this Agreement
or any Related Document;
(k)
There
occurs an event of default under any of the Related Documents;
(l)
Any
Borrower defaults (as principal or guarantor or otherwise) either in the payment
of the principal of or interest on any other Indebtedness to the Bank, or with
respect to any of the provisions of any evidence of such Indebtedness or any
agreement under which such evidence of Indebtedness may have been issued or
secured, and such default continues for more than any period of grace, if any,
specified in such instrument; or
(m)
An event
of default (as defined in the Bond Agreement) occurs and is continuing under the
Bond Agreement.
7.02
Remedies Upon Event of
Default
.
(a)
Upon the
occurrence of an Event of Default, all Obligations shall become immediately due
and payable without demand, notice, presentment, protest or other action by the
Bank, all of which are hereby waived by each Borrower. The Bank shall
have the right to notify the Trustee of said Event of Default, pursuant to
Section 7.01(h) of the Bond Agreement, and to cause the acceleration of the
payment of interest and principal on the Bonds. The Bank shall have
all of the rights and remedies provided to the Bank by the Related Documents, at
law or in equity, and no remedy herein conferred upon the Bank is intended to be
exclusive of any other remedy. Upon the occurrence of an Event of
Default, Borrower shall pay all costs and expenses which may be incurred by the
Bank with respect thereto, including reasonable attorneys’ fees, and all such
sums shall be and become a part of the Indebtedness of Borrower to the
Bank.
(b)
The Bank
may at any time without prior notice or demand set off against any credit
balance or other money now or hereafter owed to Borrower all or any part of the
Obligations. Each Borrower hereby grants to the Bank a security
interest in and Lien on any such credit balance or other money. The
Bank shall give notice of its exercise of this remedy to the Borrower as soon as
practicable.
ARTICLE VIII
MISCELLANEOUS
8.01
Indemnity
. Each
Borrower shall defend, indemnify and hold harmless the Bank, and its directors,
officers, employees and agents from and against any and all loss, cost, expense,
damage or liability (including reasonable attorneys’ fees) incurred in
connection with any claim, counterclaim or proceeding brought as a result of,
arising out of or relating to any transaction financed or to be financed, in
whole or in part, directly or indirectly, with the proceeds of the Bonds or the
entering into and performance of this Agreement, any Bond Document, any Related
Document or any agreement, document or instrument related to any of the
foregoing by the Bank, or the activities of any Borrower. This
indemnification will survive termination of this Agreement and the discharge and
release of any Bond Documents and Related Documents.
8.02
Assignability;
Successors
. No
Borrower’s rights and liabilities under this Agreement are assignable in whole
or in part without the prior written consent of the Bank. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Bank and the successors and permitted assigns
of the Borrowers.
8.03
Survival
. All
agreements and representations and warranties made herein and in the Related
Documents shall survive the execution and delivery of this Agreement and the
Related Documents.
8.04
Counterparts;
Headings
. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original, but such counterparts shall together constitute but one and the
same agreement. The section headings in this Agreement are inserted
for convenience of reference only and shall not constitute a part
hereof.
8.05
Entire Agreement;
Amendments
. This
Agreement and the Related Documents contain the entire understanding of the
parties with respect to the subject matter hereof, and supersede all other
understandings, oral or written, with respect to the subject matter
hereof. No statement or writing subsequent to the date hereof
purporting to modify, alter or amend any portion hereof, including Borrower’s
obligation to pay the amount due hereunder (whether at maturity, by reason of
acceleration or otherwise), shall be effective unless consented to in a writing,
which makes specific reference to this Agreement, and which has been signed by
the party against which enforcement thereof is sought. Any amendment,
modification, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
8.06
Notices
. All
communications, consents and notices required or permitted by this Agreement
shall be in writing and shall be deemed to have been given or made (a) when
delivered in hand or by courier, or (b) three days after being deposited in
the mail (including
private
mail service), postage prepaid. Communications, consents and notices
shall be delivered personally or by certified or registered mail, postage
prepaid, and addressed as follows, unless and until either of such parties
notifies the other in accordance with this section of a change of
address:
(i) If
to Corporation:
|
Advanced
Fiberglass Technologies, Inc.
2330
South 16
th
Street
Wisconsin
Rapids, WI 54495
Attn: Jamie
L. Mancl
Phone: (715)
421-2060
Fax: (715)
421-2048
|
with copies to:
|
Haferman
& Ilten
1525
Main Street
Stevens
Point, WI 54481-2836
Attn: Mark
O. Ilten, Esq.
Phone: (715)
342-4700
Fax: (715)
342-9974
|
(ii) if
to LLC:
|
M
& W Fiberglass, LLC
2330
South 16
th
Street
Wisconsin
Rapids, WI 54495
Attn: Jamie
L. Mancl
Phone: (715)
421-2060
Fax: (715)
421-2048
|
with copies to:
|
Haferman
& Ilten
1525
Main Street
Stevens
Point, WI 54481-2836
Attn: Mark
O. Ilten, Esq.
Phone: (715)
342-4700
Fax: (715)
342-9974
|
(iii)
if to the Individual Borrowers:
|
Advanced
Fiberglass Technologies, Inc.
2330
South 16
th
Street
Wisconsin
Rapids, WI 54495
Attn: Jamie
L. Mancl
Phone: (715)
421-2060
Fax: (715)
421-2048
|
with copies to:
|
Haferman
& Ilten
1525
Main Street
Stevens
Point, WI 54481-2836
Attn: Mark
O. Ilten, Esq.
Phone: (715)
342-4700
Fax: (715)
342-9974
|
(iv) if
to the Bank:
|
Nekoosa
Port Edwards State Bank
405
Market Street
P.O.
Box 9
Nekoosa,
WI 54457
Attn: Robb
N. Sigler
Phone: (715)
886-3104
Fax:
(715) 886-3310
|
with copies to:
|
Whyte
Hirschboeck Dudek S.C.
555
East Wells Street
Suite
1900
Milwaukee,
Wisconsin 53202-3819
Attn: Andrew
J. Guzikowski, Esq.
Phone: (414) 273-2100
Fax:
(414) 223-5000
|
8.07
No Waiver
. Any
action or inaction by the Bank, taken in the absence of the satisfaction of any
condition imposed upon Borrower by the Related Documents, including those
imposed by Sections 4.01 and 4.02 of this Agreement, shall not be deemed to
constitute a waiver of any such condition by the Bank.
8.08
Severability
. Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
8.09
Further
Assurances
.
Borrower agrees to do such further acts and things, and to execute and deliver
such additional conveyances, assignments, agreements and instruments, as the
Bank may at any time reasonably request in connection with the administration or
enforcement of this Agreement or the Related Documents or in order better to
assure and confirm unto the Bank its rights, powers and remedies
hereunder.
8.10
Conflicts and
Ambiguities
. In the
event of any ambiguity or conflict as between the terms of this Agreement, the
Related Documents or any other document executed and delivered pursuant to this
Agreement, the terms of this Agreement shall control.
8.11
Governing
Law
. The
validity, construction, enforcement and performance of this Agreement shall be
governed by the internal laws of the State of Wisconsin.
8.12
Consent to
Jurisdiction
.
Borrower hereby irrevocably submits to the exclusive jurisdiction of any United
States federal or Wisconsin state court sitting in Milwaukee, Wisconsin, in any
action or proceeding arising out of or relating to this Agreement or any related
documents, and Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in any such court and
irrevocably waives any objection it may now or hereafter have as to the venue of
any such suit, action or proceeding brought in such a court or that such court
is an inconvenient forum. Nothing herein shall limit the right of the
Bank to bring proceedings against the Borrower in the courts of any other
jurisdiction. Any judicial proceeding by Borrower against the Bank,
or any affiliate of the Bank involving, directly or indirectly, any matter in
any way arising out of, related to, or connected with this Agreement or any
Related Documents shall be brought only in a United States federal or Wisconsin
state court sitting in Milwaukee, Wisconsin.
8.13
Fees and
Expenses
. Borrower
shall reimburse the Bank for all out-of-pocket expenses incurred in connection
with the preparation of this Agreement and the Related Documents (including,
without limitation, filing and recording fees, appraisal expenses, survey
expenses, hazard and title insurance premiums, inspections fees, and the
reasonable fees and expenses of all of its counsel, advisors, consultants and
auditors retained in connection with this Agreement and the Related Documents
and the transactions contemplated thereby and advice in connection
therewith). Borrower hereby shall reimburse the Bank for all fees,
costs and expenses, including the fees, costs and expenses of counsel or other
advisors (including environmental and management consultants) for advice,
assistance, or other representation in connection with:
(i)
the
purchase and holding by Bank of the Bonds;
(ii)
any
amendment, modification or waiver of, or consent with respect to, this
Agreement, any of the Related Documents or any of the Bond Documents or advice
in connection with the administration of the extensions of credit made pursuant
hereto or its rights hereunder or thereunder;
(iii)
any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
the Bank, Borrower, or any other Person) in any way relating to the Collateral,
this Agreement, any of the Bond Documents, any of the Related Documents or any
other agreement to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person that
may be obligated to the Bank by virtue of this Agreement, any of the Bond
Documents or any of the Related Documents;
(iv)
any
attempt to enforce any rights of the Bank against Borrower, or any other Person
that may be obligated to the Bank by virtue of this Agreement or any of the
Related Documents;
(v)
efforts
to (A) monitor any of the Obligations, (B) evaluate, observe, assess
Borrower or its affairs, and (C) verify, protect, evaluate, assess,
appraise,
collect,
sell, liquidate or otherwise dispose of any of the Collateral; including,
without limitation, all the attorneys’ and other professional and service
providers’ fees arising from such services, including those in connection with
any appellate proceedings; and all expenses, costs, charges and other fees
incurred by such counsel and others in any way or respect arising in connection
with or relating to any of the events or actions described in this
Section 8.13 shall be payable, on demand by Borrower to the
Bank. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include: fees, costs and expenses of
accountants, attorneys, environmental advisors, appraisers, investment bankers,
management and other consultants and paralegals; court costs and expenses;
photocopying and duplication expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal or other advisory
services.
8.14
Assignments;
Participations
. The
Bank may at any time sell, assign or transfer to one or more banks or other
entities (“Participants”) interests in this Agreement and the other Related
Documents or any other interest of the Bank or extension of credit
hereunder. Borrower authorizes the Bank to disclose to any
Participant and any such prospective Participants any and all financial
information in the Bank’s possession concerning Borrower, and its affiliates
which has been delivered to the Bank by or on behalf of Borrower pursuant to
this Agreement or any Related Document or which has been delivered to the Bank
by or on behalf of the Borrower in connection with the Bank’s credit evaluation
of Borrower, and its affiliates prior to becoming a party to this
Agreement. Each Borrower agrees that if amounts outstanding under
this Agreement or any Related Document are due and unpaid, or shall have been
declared to be or shall have become due and payable upon the occurrence of any
Event of Default, each Participant shall be deemed to have the right of setoff
in respect of its participating interest in amounts owing under this Agreement
or such Related Document to the same extent as if the amount of its
participating interest were owing directly to it as a lender under this
Agreement or any Related Document.
8.15
WAIVER OF JURY
TRIAL
. EACH
BORROWER AND THE BANK HEREBY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE RELATED DOCUMENTS, THE
OBLIGATIONS HEREUNDER AND THEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS,
OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED THERETO. BORROWER
AND THE BANK REPRESENT TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY GIVEN.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
|
ADVANCED FIBERGLASS TECHOLOGIES, INC.
, a
Wisconsin corporation
|
|
|
|
|
|
|
By:
|
/s/ Jamie
L. Mancl
|
|
|
|
Jamie
L. Mancl, President
|
|
|
M & W FIBERGLASS, LLC
, a
Wisconsin limited liability company
|
|
|
|
|
|
|
By:
|
/s/ Jamie
L. Mancl
|
|
|
|
Jamie
L. Mancl, its sole member
|
|
|
|
|
|
|
|
/s/ Jamie
L. Mancl
|
|
|
|
JAMIE L. MANCL
, an individual
resident of the State of Wisconsin
|
|
|
|
|
|
|
|
/s/ Jennifer
Mancl
|
|
|
|
JENNIFER MANCL
, an individual resident of
the State of Wisconsin
|
|
|
NEKOOSA PORT EDWARDS STATE BANK
, a
Wisconsin banking corporation
|
|
|
|
|
|
|
By:
|
/s/ Robb
N. Sigler
|
|
|
|
Robb
N. Sigler, President
|
|
[Signature
Page of Credit Agreement]
SCHEDULE 1.01(A)
PROJECT
REAL PROPERTY
Lot 1 of
Wood County Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps
at Page 190, being part of the SE ¼ of the NE ¼ of Section 10, Township 22
North, Range 6 East, City of Wisconsin Rapids, Wood County,
Wisconsin.
Tax Key
No.: Part of 34-09841 and Part of 34-09852
SCHEDULE 3.11
PLACES OF
BUSINESS/LOCATIONS OF COLLATERAL
2330
South 16
th
Street
Wisconsin
Rapids, WI 54495
4400
Commerce Drive
Wisconsin
Rapids, WI 54495
EXHIBIT 10.7
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
CONSTRUCTION MORTGAGE, ASSIGNMENT OF LEASES
AND
RENTS AND FIXTURE FILING DATED FEBRUARY 28,
2007
CONSTRUCTION
MORTGAGE,
ASSIGNMENT
OF LEASES AND RENTS
AND
FIXTURE FILING
|
|
Return
to:
|
Lisa R.
Lange, Esq.
|
|
|
|
White Hirschboeck
Dudek S.C.
|
|
|
|
One Ease
Main St., Suite 300
Madison, WI
53703
|
Given By:
M & W
FIBERGLASS, LLC,
a
Wisconsin limited liability company
In favor
of:
NEKOOSA
PORT EDWARDS STATE BANK
Dated as
of February 28, 2007
Relating
to:
$4,000,000
City of
Wisconsin Rapids, Wisconsin
Industrial
Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced
Fiberglass Technologies Project)
This Is A
Construction Mortgage Within The Meaning of Wis. Stats. §409.334(8) and
§706.11(1m)
This
Mortgage Secures Future Advances
This is
Non-Homestead Property
CONSTRUCTION MORTGAGE,
ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING
THIS CONSTRUCTION MORTGAGE, ASSIGNMENT
OF LEASES AND RENTS AND FIXTURE FILING (the “
Mortgage
”) is made
and entered into as of the 28
th
day of
February, 2007, by M & W FIBERGLASS, LLC, a Wisconsin limited liability
company (the “
Mortgagor
”), in favor
of NEKOOSA PORT EDWARDS STATE BANK, as Trustee and as Original Purchaser of the
Bonds (the “
Bank
”).
RECITALS
A. The
City of Wisconsin Rapids, Wisconsin (the “
Issuer
”), will issue
its Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies, Inc. Project) in the aggregate principal
amount of Four Million Dollars ($4,000,000) (the “
Bonds
”), pursuant to
a Bond Agreement dated as of February 28, 2007 (the “
Bond Agreement
”), by
and between the Issuer, the Mortgagor, Advanced Fiberglass Technologies, Inc., a
Wisconsin corporation (the “
Corporation
” and
together with the Mortgagor, Jamie L. Mancl and Jennifer Mancl, the “
Borrower
,”) Nekoosa
Port Edwards State Bank, as trustee (the “
Trustee
”) and Nekoosa
Port Edwards State Bank, as Original Purchaser (the “
Original
Purchaser
”).
B. The
proceeds derived from the issuance of the Bonds will be loaned to the Borrower
pursuant to the Bond Agreement, and used to finance a project consisting of (i)
the construction of an approximately 70,000 square foot manufacturing facility
located at 4400 Commerce Drive, in the City of Wisconsin Rapids, Wisconsin (the
“
Facility
”) to
be owned by Mortgagor and operated by the Corporation; and (ii) the acquisition
and installation of equipment at the Facility (collectively, the “
Project
”).
C. To
provide the funds to be loaned to the Borrower for payment of the costs of the
Project, the Issuer has contracted for the sale of the Bonds to the Original
Purchaser, and the Original Purchaser has agreed to purchase such Bonds in
reliance on Borrower’s agreement to the terms and conditions set forth in that
certain Credit Agreement dated as of February 28, 2007 by and between the
Borrower and the Original Purchaser (the “
Credit
Agreement
”).
D. It
is a condition precedent to the Original Purchaser’s obligation to purchase the
Bonds that the Mortgagor shall have executed and delivered this Mortgage to the
Bank to secure the Obligations (as defined in the Credit Agreement) and all
other indebtedness (whether presently existing or hereafter arising) of the
Mortgagor to the Bank.
AGREEMENT
In consideration of those obligations
as stated in the Recitals and to induce the Bank to enter into the Credit
Agreement and to purchase the Bonds, the Mortgagor hereby agrees with the Bank
as follows:
ARTICLE
I
DEFINITIONS
1.01
Definitions
. All
capitalized terms used herein and not otherwise defined herein shall have
meanings assigned to them in the Credit Agreement. The following terms used
herein have the meanings defined below:
(a)
Event of
Default
: shall have the same meaning assigned to such term in
Article V.
(b)
Insured
Casualty
: shall mean any insured damage to or destruction of
the Mortgaged Property or any part thereof.
(c)
Lease or Leases
:
shall mean any lease of all or a portion of the Real Property.
(d)
Mortgaged
Property
: shall mean the Real Property together with all of
the other property and items described in Article II hereof, including the
Project.
(e)
Real
Property
: shall mean the land described in
Exhibit A
attached hereto and
made a part hereof, together with any and all easements, rights-of-way,
licenses, hereditaments, rights and privileges and appurtenances thereto,
together with any and all other land which may at any time hereafter be conveyed
by the Mortgagor to the Bank as security for the Secured
Obligations.
(f)
Secured Obligations
:
shall have the meaning assigned to it in Article II.
ARTICLE
II
GRANTING
CLAUSE
To secure the performance of all
covenants and agreements contained in this Mortgage, to secure the timely
payment and performance of the Obligations, to secure all other obligations and
indebtedness of the Borrower to the Bank, including without limitation all
obligations and indebtedness under the Bond Documents, the Credit Agreement and
the other Related Documents, together with all fees, charges, interest and other
amounts that may come due thereunder (all of the foregoing, the “
Secured
Obligations
”), the Mortgagor, by these presents does hereby mortgage,
grant, convey and assign to the Bank, its successors and assigns, with power of
sale, forever, all and singular their entire estate and interest, whether fee or
leasehold or otherwise, in the following described property,
to-wit:
2.01
Real
Property
. The Real Property.
2.02
Highways and
Thoroughfares
. All right, title and interest of Mortgagor, if
any, now or at any time hereafter existing, in and to all highways, roads,
streets, alleys and other public thoroughfares, bordering on or adjacent to the
Real Property, together with all right, title and interest
of
Mortgagor to the land making up such highways, roads, streets, alleys and other
public thoroughfares and all heretofore or hereafter vacated highways, roads,
streets, alleys and public thoroughfares adjoining or within the Real Property
or any part thereof.
2.03
Buildings and
Fixtures
. All buildings, structures, improvements, plants,
works and fixtures now or at any time hereafter located on any portion of the
Real Property, including the Project, and, without any further act, all
extensions, additions, betterments, substitutions and replacements
thereof.
2.04
Intangible Rights,
Rents
. All rights, privileges, permits, licenses, easements,
consents, tenements, hereditaments and appurtenances now or at any time
hereafter belonging to or in any wise appertaining to the Real Property or to
any property now or at any time hereafter comprising a part of the property
subject to this Mortgage; and all right, title and interest of Mortgagor,
whether now or at any time hereafter existing, in all reversions and remainders
to the Real Property and such other property, and all rents, income, issues,
profits, royalties and revenues derived from or belonging to such Real Property
and other property subject to this Mortgage or any part thereof.
2.05
Proceeds
. Any
and all proceeds of the conversion, whether voluntary or involuntary, of all or
any part of the Real Property and other property and interests subject to this
Mortgage into cash or liquidated claims, including, without limitation by reason
of specification, proceeds of insurance and condemnation awards and any and all
other property of every name and nature from time to time by delivery or writing
of any kind conveyed, mortgaged, pledged, assigned or transferred for additional
security for this Mortgage.
TO HAVE AND TO HOLD all of the
foregoing (the “
Mortgaged Property
”)
unto the Bank, its successors and assigns, forever; provided that if the
Borrower pay all amounts required to be paid to the Bank under the Bond
Documents, the Credit Agreement and other Related Documents according to their
terms, make all other required payments and perform all other terms, conditions,
covenants and agreements contained in the Bond Documents, the Credit Agreement
and the other Related Documents, then this Mortgage shall cease and be
void. If any improvements or property become a part of the Mortgaged
Property after the date hereof by location or installation on the Real Property
or in the building or buildings now or in the future situated thereon or
otherwise, then this Mortgage shall immediately attach to and constitute a lien
or security interest against such additional items without further act or deed
of Mortgagor.
ARTICLE
III
ASSIGNMENT OF LEASES AND
RENTS
3.01
Collateral Assignment of
Leases and Rents
. The Mortgagor does hereby conditionally as
and for collateral and as security for the Secured Obligations sell, assign,
transfer and set over unto the Bank, its successors and assigns, all of the
right, title and interest of the Mortgagor in, to and under the Leases,
including all amendments and supplements to and renewals and extensions of the
Leases at any time made; together with all rents, earnings, income, issues and
profits arising from the Project or from said Leases and all other sums due or
to become due under
and
pursuant thereto; together with any and all guarantees under any of said Leases;
together with all proceeds payable under any policy of insurance covering loss
of rents for any cause; together with all rights, powers, privileges, options
and other benefits of the Mortgagor, as lessor or sublessor, under the Leases,
including, but not limited to: (i) the immediate and continuing right
to receive and collect all rents, income, revenues, issues, profits,
condemnation awards, moneys and security payable or receivable under the Leases,
or pursuant to any of the provisions thereof, whether as rent or otherwise, and
(ii) the right to make all waivers and agreements, to give and to receive all
notices, consents and releases, to take such action upon the happening of a
default under any Lease, including the commencement, conduct and consummation of
proceedings at law or in equity as shall be permitted under any provision of any
Lease or by law, and to do any and all other things whatsoever which the
Mortgagor is or may become entitled to do under the Leases; and together with
all other rights, powers, privileges, options and benefits of the Mortgagor in
connection with the Real Property, including, but not by way of limitation,
building permits, zoning variances, plans, specifications and contracts with
architects.
3.02
Remedies
. If
an Event of Default shall occur, the Mortgagor consents to and irrevocably
authorizes and directs the tenants under the Leases and any successors to the
interest of the tenants, upon demand and notice from the Bank of the Bank’s
right to receive the rents and other amounts under such Leases, to pay to the
Bank the rents and other amounts due or to become due under the Leases, and the
tenants shall have the right to rely upon such demand and notice from the Bank
without any obligation or right to determine the actual existence of the Bank’s
right to receive such rents and other amounts, notwithstanding any notice from
or claim of the Mortgagor to the contrary. The Mortgagor shall have
no right or claim against any tenant for any such rents and other amounts so
paid by the tenant to the Bank.
If any such Event of Default shall
occur, the Bank shall, at its option, have the complete right, power and
authority, to (i) enter upon, take and maintain possession of and operate the
Mortgaged Property, or any part thereof, together with all documents, books,
records, papers, and accounts relating thereto; (ii) exclude the Mortgagor, its
agents and servants therefrom; and (iii) hold, operate, manage and control the
Mortgaged Property, or any part thereof, as fully and to the same extent as the
Mortgagor could do if in possession, and, in such event, without limitation and
at the Mortgagor’s expense from time to time:
(a)
Rent or lease
the whole or any part of the Mortgaged Property for such term or terms and on
such conditions as may seem proper to the Bank, including entering into leases
for terms expiring beyond the maturity of the indebtedness secured by the
Mortgage, and cancel any lease or sublease for any cause or on any ground which
would entitle the Mortgagor to cancel it;
(b)
Demand,
collect, and receive from the tenant or tenants now or hereafter in possession
of the Mortgaged Property, or any part thereof, or from other persons liable
therefor, all of the rents and revenues from such tenant or tenants or other
persons which may now be due and unpaid and which may hereafter become
due;
(c)
Institute and
prosecute any and all suits for the collection of rents and all other revenues
from the Mortgaged Property which may now be due and unpaid and which
may
hereafter become due; institute and carry on all legal proceedings necessary for
the protection of the Mortgaged Property, including such proceedings as may be
necessary to recover the possession of the whole or of any part thereof;
institute and prosecute summary proceedings for the removal of any tenant or
tenants or other persons from the Mortgaged Property; and pay the costs and
expenses of all such suits and proceedings out of the rents and other revenues
received;
(d)
Maintain the
Mortgaged Property and keep it in repair, and pay, out of the rentals and other
revenues received the costs of such maintenance and repairs, including the cost
and expenses of all services of all employees, including their equipment, and of
all expenses of maintaining and keeping the Mortgaged Property in repair and in
proper condition;
(e)
Employ an
agent or agents to rent and manage the Mortgaged Property and to collect the
rents and other revenues thereof, and pay the reasonable value of its or their
services out of the rents and revenues received;
(f)
Effect
general liability insurance, fire insurance, boiler insurance, rent insurance,
workers’ compensation law insurance, and generally such other insurance as is
customarily effected by an owner of property of a style and kind similar to the
Mortgaged Property, or as the Bank may deem advisable or necessary, and pay the
premiums and other charges out of the rents and other revenues
received;
(g)
Pay, out of
the rents and other revenues received, all sums, and the interest thereon, now
due to the Bank under this Mortgage, the Credit Agreement or the other Related
Documents and hereafter to become due, and all taxes, assessments, and other
charges now due and unpaid and which may hereafter become due and a charge or
lien upon the Mortgaged Property;
(h)
Execute and
comply with all applicable laws, rules, orders, ordinances, and requirements of
any and all governmental authorities affecting the Mortgaged Property, and pay
the costs thereof out of the rents and other revenues received;
(i)
Act
exclusively and solely in the place and stead of the Mortgagor, and to have all
of the Mortgagor’s powers for the purposes stated above; and
(j)
From time to
time determine to which one or more of the above purposes the rents and revenues
shall be applied and the amount to be applied thereto.
After payment of all proper
charges and expenses, including the just and reasonable compensation for the
services of the Bank, its attorneys and agents and others employed by the Bank
in connection with the operation, management and control of the Mortgaged
Property, and such further sums as may be sufficient to indemnify the Bank from
and against any liability, loss or pursuance of its rights and powers under this
Section 3.02, the Bank may, at its option, credit the net amount of income which
the Bank may receive by virtue of this assignment and from the Mortgaged
Property to any and all amounts due or owing to the Bank from the Mortgagor
under the
terms and
provisions of the Bond Documents, the Credit Agreement, this Mortgage and the
other Related Documents. The balance of the net income shall be
released to or upon the order of the Mortgagor.
The Bank’s acceptance of this Mortgage,
with all the rights, powers, privileges and authority created under this
assignment, shall not, prior to entry upon and taking possession of the
Mortgaged Property by the Bank, be deemed or construed to constitute the Bank a
mortgagee in possession, or thereafter or at any time or in any event impose any
obligation whatsoever upon the Bank to appear in or defend any action or
proceeding relating to any Lease or the Mortgaged Property, or to take any
action hereunder, or to expend any money or incur any expenses, or to perform or
discharge any obligation, duty or liability under any Lease, or to assume any
obligation or responsibility for any security deposits or other deposits
delivered to Mortgagor by any tenant and not assigned and delivered to the Bank,
or render the Bank liable in any way for any injury or damage to person or
property sustained by any person or persons, firm or corporation in or about the
Mortgaged Property.
The Mortgagor agrees that the
collection of rents and the application as stated above or the entry upon and
taking of possession of the Mortgaged Property, or any part thereof, by the Bank
shall not cure or waive any default or waive, modify or affect any notice of
default under the Bond Documents, the Credit Agreement or any other Related
Document, or invalidate any act done pursuant to such notice, and the
enforcement of such right or remedy by the Bank, once exercised, shall continue
for so long as the Bank elects so long as an Event of Default
exists. If the Bank elects to discontinue the exercise of any such
right or remedy, the same or any other right or remedy under this Mortgage may
be reasserted at any time and from time to time following any subsequent
default.
3.03
Right of
Mortgagor
. Notwithstanding anything in this Mortgage, so long
as no Event of Default shall have occurred and continue uncured, the Mortgagor
shall have the right to occupy the Mortgaged Property as landlord or otherwise,
to collect, use, and enjoy the rents, issues, profits, and other sums payable
under and by virtue of all Leases and to enforce the covenants of all Leases, it
being agreed that the assignment made hereby is for collateral purposes only,
and is conditioned upon the occurrence and continuance of an Event of Default
hereunder or under the Bond Documents or the Credit Agreement.
Mortgagor hereby covenants and agrees
that Mortgagor shall not, without Bank’s prior written consent: (a)
accept any payment of any installment of rent more than two (2) months in
advance of the due date therefor; or (b) enter into any management
agreement. Mortgagor further covenants and agrees that Mortgagor
shall, at its sole cost and expense: (a) promptly abide by, discharge
and perform in all material respects all of the covenants, conditions and
agreements contained in all Leases, on the part of the landlord thereunder; (b)
enforce or secure the performance of all of the material covenants, conditions
and agreements contained in any Lease on the part of any tenant thereunder; and
(c) appear in and defend any action or proceeding arising out of or related to
such Leases or the obligations, duties or liabilities of the landlord or of any
tenants thereunder.
3.04
Bank Not to Become
Liable
. Prior to entry upon and taking possession of the
Mortgaged Property by the Bank, the Bank and its assigns shall not be obligated
to perform or discharge, nor do such parties hereby undertake to perform or
discharge, any obligation, duty, or liability of the Mortgagor under any
Lease. Prior to entry upon and taking possession of the Mortgaged
Property by the Bank, this Article shall not operate to place upon the Bank or
its assigns responsibility for the control, care, management or repair of the
Mortgaged Property or for the performance of any of the terms and conditions of
any Lease. The Bank and its assigns shall not be responsible or
liable for any waste committed on the Mortgaged Property, for any dangerous or
defective condition of the Mortgaged Property, for any negligence in the
management, upkeep, repair or control of the Mortgaged Property or for failure
to collect any rents or other payments under the Leases, except for such acts or
conditions as shall occur while the Mortgaged Property is in the control of the
Bank pursuant to Section 3.02 hereof.
3.05
Waiver of
Mortgagor
. To the fullest extent permitted by law, the
Mortgagor hereby waives any and all claims against the Bank and its assigns
arising out of or in any way related to any act or failure to act pursuant to
this assignment, it being expressly understood and agreed that this assignment
of leases is for collateral purposes only, imposes no obligation on the Bank or
its assigns to take any action whatsoever and any action to enforce this
assignment is in the sole discretion of the Bank or its assigns.
ARTICLE
IV
COVENANTS OF
MORTGAGOR
So long as any of the Bonds remain
outstanding, and so long as any of the Secured Obligations remain outstanding,
the Mortgagor agrees that Mortgagor shall abide by each of the following
covenants:
4.01
Payment of Principal and
Interest
. Mortgagor shall duly and punctually pay or cause to
be paid all amounts under this Mortgage, the Bond Documents, the Credit
Agreement and any other Related Document when due, and promptly pay any
penalties or other assessments that may be made, and timely comply with and
carry out all of the covenants and agreements set forth in the Credit Agreement
and the other Related Documents.
4.02
Insurance; Damage or
Destruction
.
(a) The
Mortgagor shall provide and maintain or cause to be maintained at all times the
insurance required under the Credit Agreement. No insurance policy
shall be cancelable or subject to reduction of coverage or modification except
after thirty (30) days’ prior written notice to the Bank. All
insurers providing such policies shall have an A. M. Best’s
policyholder rating of at least B and a financial size rating of at least Class
X. At least ten (10) days prior to the expiration of Mortgagor’s
policies, Mortgagor shall furnish the Bank with renewals or “binders” therefor
or the Bank may order such insurance and charge Mortgagor for the cost
thereof.
(b)
Mortgagor
shall give the Bank prompt notice of any damage or destruction to the Mortgaged
Property. All proceeds of insurance under such policies (except
liability insurance and except in the case of any particular casualty resulting
in a loss payment not exceeding $10,000 in the aggregate) shall be paid to the
Bank, and all such policies shall provide that the proceeds of such insurance
(except in the case of any particular casualty resulting in loss payment not
exceeding $10,000 in the aggregate) shall be paid to the Bank as its interest
may appear, by means of a standard mortgagee clause. In case of loss
exceeding $10,000, the Bank (or after entry of judgment of foreclosure, the
purchaser at the sale) is hereby authorized, to either (i) settle or adjust any
claim under such insurance policies without the consent of Mortgagor or (ii)
allow Mortgagor to agree with the insurance company or companies on the amount
to be paid upon the loss.
(c)
In the event
of an Insured Casualty, and:
(i)
If, (A) (1) the
Insured Casualty occurred prior to the final completion of the Project, or (2)
in the reasonable judgment of the Bank, the Mortgaged Property can be restored
to an economic unit not less valuable than the same was prior to the Insured
Casualty, and (B) the insurance proceeds are sufficient to adequately secure the
outstanding balance of the indebtedness hereby secured, then, if no Event of
Default as hereinafter defined shall have occurred and Mortgagor shall not be in
default hereunder, the proceeds of insurance shall be applied to reimburse
Mortgagor for the cost of restoring, repairing, replacing or rebuilding the
Mortgaged Property or part thereof subject to the Insured Casualty, as provided
for in Section 4.02(d) hereof; and Mortgagor hereby covenants and agrees,
not later than ninety (90) days after the date of the Insured Casualty, to
commence and to diligently prosecute such restoring, repairing, replacing or
rebuilding; provided, always, that Mortgagor shall pay all costs of such
restoring, repairing, replacing or rebuilding in excess of the proceeds of
insurance.
(ii)
Except as provided in
Section 4.02(c)(i), the Bank may apply the proceeds of insurance consequent
upon any Insured Casualty upon the indebtedness hereby secured, in such order or
manner as the Bank may elect. No prepayment penalty shall be due on
insurance proceeds applied to the indebtedness.
(iii)
In the event that
proceeds of insurance, if any, shall be made available to Mortgagor for the
restoring, repairing, replacing or rebuilding of the Mortgaged Property,
Mortgagor hereby covenants to restore, repair, replace or rebuild the same to be
of at least equal value, and in the same character and of the same quality as
prior to such damage or destruction; all to be effected in accordance with plans
and specifications to be first submitted to and approved by the
Bank.
(d)
In the event
Mortgagor is entitled to reimbursement out of insurance proceeds held by the
Bank, such proceeds shall be disbursed from time to time upon the Bank being
furnished with satisfactory evidence: of the estimated cost of completion of the
restoration, repair, replacement and rebuilding; that funds of Mortgagor (or
assurances satisfactory to the Bank that such funds are available) when combined
with the proceeds of
insurance,
to complete the proposed restoration, repair, replacement and rebuilding; and
with such architect’s certificates, waivers of lien, contractor’s sworn
statements and such other evidences of cost and of payment as the Bank may
reasonably require and approve; and the Bank may, in any event, require that all
plans and specifications for such restoration, repair, replacement and
rebuilding be submitted to and approved by the Bank prior to the commencement of
work. No payment made prior to the final completion of the restoration,
repair, replacement or rebuilding shall exceed ninety percent (90%) of the value
of the work performed from time to time; funds other than proceeds of insurance
shall be disbursed prior to disbursement of such proceeds; and at all times the
undisbursed balance of such proceeds remaining in the hands of the Bank,
together with funds deposited for the purpose of completing the restoration,
repair, replacement or rebuilding are irrevocably committed to the satisfaction
of the Bank by or on behalf of Mortgagor for the purpose, shall be at least
sufficient in the reasonable judgment of the Bank to pay for the cost of
completion of the restoration, repair, replacement or rebuilding, free and clear
of all liens or claims for lien. Interest shall be allowed to
Mortgagor on account of any proceeds of insurance or other funds held by the
Bank at the same rate being paid on the Bank’s money market accounts and shall
be available for such restoration, repair, replacement or
rebuilding. Notwithstanding anything contained herein to the
contrary, the Bank may, in its sole discretion, require that the administration
of the restoration, repair, replacement and rebuilding, and the distribution of
insurance proceeds be done pursuant to and in accordance with the Credit
Agreement and Related Documents.
(e)
All policies
of insurance provided for in subsection (a) of this Section 4.02 shall be
effective under a valid and enforceable policy or policies issued by an insurer
of recognized responsibility licensed to do business in the State of Wisconsin,
and shall be written in the names of Mortgagor and the Bank as their respective
interests may appear. All casualty policies shall provide that the proceeds of
such insurance shall be payable to the Bank pursuant to a standard mortgage
clause to be attached to each such policy. Mortgagor shall deposit
with the Bank policies evidencing all such insurance or a certificate or
certificates of the respective insurers stating that such insurance is in force
and effect.
4.03
Preservation and Maintenance
of Mortgaged Property
. Mortgagor (a) shall not commit
waste or permit impairment or deterioration of the Mortgaged Property, (b) shall
not abandon the Mortgaged Property, (c) shall restore or repair promptly
and in a good and workmanlike manner all or any part of the Mortgaged Property
to the equivalent of its original condition, or such other condition as the Bank
may approve in writing, in the event of any damage, injury or loss thereto,
whether or not insurance proceeds are available to cover in whole or in part the
costs of such restoration or repair, (d) shall keep the Mortgaged Property,
including improvements, fixtures, equipment, machinery and appliances thereon in
good repair and shall replace fixtures, equipment, machinery and appliances on
the Mortgaged Property when necessary to keep such items in good repair, (e)
shall comply with all laws, ordinances, regulations and requirements of any
governmental body applicable to the Mortgaged Property, (f) if the Mortgaged
Property is leased, shall generally operate and maintain the Mortgaged Property
in a manner to ensure maximum rentals, and (g) shall give notice in writing to
the Bank of and, unless otherwise directed in writing by the Bank, appear in and
defend any action or proceeding purporting to affect the Mortgaged Property, the
security of this Mortgage or the rights or powers of the
Bank.
Neither
Mortgagor nor any other person shall remove, demolish or alter any improvement
now existing or hereafter erected on the Mortgaged Property or any fixture,
equipment, machinery or appliance in or on the Mortgaged Property except when
incident to the replacement of fixtures, equipment, machinery and appliances
with items of like kind.
4.04
Condemnation
Proceeds
. Mortgagor shall give the Bank prompt notice of any
pending or threatened eminent domain proceeding of any part or all of the
Mortgaged Property, including any damages to grade, and Mortgagor hereby
assigns, transfers and sets over unto the Bank the entire proceeds of any award
or claim for damages for any of the Mortgaged Property taken or damaged under
the power of eminent domain. If any such proceeding occurs prior to
the final completion of the Project, the Bank shall, and in any event the Bank
may elect to, apply (or hold for application when due) the proceeds of the award
upon or in reduction of the indebtedness hereby secured then most remotely to be
paid, whether due or not, or to require Mortgagor to restore or rebuild the
Mortgaged Property in which event the proceeds shall be held by the Bank and
used to reimburse Mortgagor for the cost of such rebuilding and
restoring. If Mortgagor is required or permitted to rebuild or
restore the Mortgaged Property as aforesaid, such rebuilding or restoration
shall be effected solely in accordance with plans and specifications previously
submitted to and approved by the Bank, and proceeds of the award shall be paid
out in the same manner as is provided in Section 4.02 for the payment of
insurance proceeds towards the costs of rebuilding or restoration. If
the amount of such award is insufficient to cover the cost of rebuilding or
restoration, Mortgagor shall pay such costs in excess of the award, before being
entitled to reimbursement out of the award. Any surplus which may
remain out of the award after payment of such costs of rebuilding or restoration
shall, at the option of the Bank, be applied (or held for application when due)
on account of the indebtedness hereby secured, then most remotely to be paid or
be paid to any other party entitled thereto. Notwithstanding any
taking by eminent domain, Mortgagor shall continue to pay interest on the entire
principal sum secured until any such award or payment shall have been actually
received by the Bank and any reduction in the principal sum resulting from the
application by the Bank of such award or payment as hereinafter set forth shall
be deemed to take effect only on the date of such receipt. If, prior
to the receipt by the Bank of such award or payment, the Mortgaged Property
shall have been sold on foreclosure of this Mortgage, the Bank shall have the
right to receive such award or payment to the extent of any deficiency found to
be due upon such sale, with interest thereon at the then-applicable rate on the
Bonds, whether or not a deficiency judgment on this Mortgage shall have been
sought or recovered or denied, and of the reasonable attorneys’ fees, costs and
disbursements incurred by the Bank in connection with the collection of such
award or payment. No prepayment penalty shall be charged on amounts
received by the Bank pursuant to an award under the power of eminent
domain.
4.05
Expenses of
Litigation
. If any action or proceeding be commenced, to which
action or proceeding the Bank is or becomes a party or in which it becomes
necessary to defend or uphold the lien of this Mortgage or the efficacy of any
other Related Document, all sums paid by the Bank for the expenses of any
litigation (including reasonable attorneys’ fees) to prosecute or defend the
rights and lien created by this Mortgage or said Related Documents shall, on
notice and demand, be paid by Mortgagor, together with the interest thereon at
the rate on the Bonds and shall be a lien on the Mortgaged Property, prior to
any right or title to, interest in or claim upon the Mortgaged Property
subordinate to the lien of this Mortgage, and shall be deemed to be secured by
this Mortgage.
4.06
Compliance with
Laws
. Mortgagor covenants, warrants and represents that the
Mortgaged Property complies with the covenants and restrictions affecting the
Mortgaged Property, with all applicable building and zoning laws, and Mortgagor
shall at all times so own and use the same and take all steps necessary to
assure such compliance at all times. Mortgagor shall not initiate or
acquiesce in any zoning reclassification, or seek any conditional use permit,
without the Bank’s written consent.
4.07
No Further
Encumbrances
. Mortgagor represents and warrants to and
covenants with the Bank, its successors and assigns that: (a) Mortgagor is the
owner of a fee simple interest in the Mortgaged Property, subject only to the
Permitted Liens; (b) this Mortgage is and shall remain a valid and
enforceable lien on the Mortgaged Property to secure the performance
of the Secured Obligations, subject only to the Permitted Liens; and
(c) it will forever warrant and defend to the Bank, its successors and
assigns, the Mortgaged Property against all claims and demands whatsoever not
specifically excepted in this Mortgage. The Mortgagor will keep the
Mortgaged Property free from all liens and encumbrances, whether inferior or
superior to the lien of this Mortgage, except for the Permitted
Liens. Any person, firm or corporation taking a mortgage, lien or
other encumbrance against the Mortgaged Property (except for those that are
Permitted Liens) shall take the said lien subject to the rights of the Bank
herein and the right of the Bank to amend, modify and supplement this Mortgage
and the Related Documents and to extend the maturity of any indebtedness hereby
secured, in each and every case without obtaining the consent of the holder of
any such liens and without the lien of this Mortgage losing its priority over
the rights of any such liens.
4.08
Transfers
. Mortgagor
may not transfer all or any part of its interest in the Mortgaged Property
without the prior approval of the Bank.
4.09
Leases
. Except
for the lease of the Mortgaged Property to the Corporation, Mortgagor shall not
lease any portion of the Mortgaged Property, except with the prior written
approval of the Bank. Mortgagor, at the Bank’s request and expense,
shall furnish the Bank with copies of all executed leases now existing or
hereafter made of all or any part of the Mortgaged Property.
4.10
Use of Mortgaged
Property
. Unless required by applicable law or unless the Bank
otherwise agrees in writing, Mortgagor shall not allow changes in the use for
which all or any part of the Mortgaged Property was intended at the time this
Mortgage was executed.
4.11
Protection of the Bank’s
Security
. If Mortgagor fails to perform the covenants and
agreements contained in this Mortgage, or if any action or proceeding is
commenced which affects the Mortgaged Property or title thereto or the interest
of the Bank therein, including, but not limited to, eminent domain, insolvency,
code enforcement or arrangements or proceedings involving a bankrupt or
decedent, then the Bank, at its option, may upon ten (10) days’ notice to
Mortgagor (except where such notice would be extremely impractical) make such
appearances, disburse such sums and take such action as the Bank deems
necessary, in its sole discretion, to protect the Bank’s interest, including,
but not limited to: (i) disbursement of attorneys’ fees; (ii) entry
upon the Mortgaged Property to make repairs; or (iii) procurement of
satisfactory insurance as provided in
Section 4.02
hereof. Any amounts disbursed by the Bank pursuant to this
Section 4.11, with interest thereon, shall become additional indebtedness
of Mortgagor secured by this Mortgage. Unless Mortgagor and the Bank
agree to other terms of payment, such amounts shall be immediately due and
payable and shall bear interest from the date of disbursement at the Default
Rate unless such rate of interest exceeds applicable law, in which event such
amounts shall bear interest at the highest rate which may be collected from
Mortgagor under applicable law. Mortgagor hereby covenants and agrees
that the Bank shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the indebtedness secured
hereby. Nothing contained in this Section 4.11 shall require the
Bank to incur any expense or take any action hereunder.
4.12
Inspection
. Mortgagor
shall permit the Bank, and its duly authorized agents, experts, engineers and
representatives, upon at least 24 hours’ prior notice, to make or cause to be
made entries upon and inspections of the Mortgaged Property during normal
business hours at all times during the term hereof. Mortgagor shall
assist the Bank in conducting all inspections and shall make access available to
the Bank to all areas.
4.13
Books and
Records
. Mortgagor shall keep and maintain at all times at
Mortgagor’s address stated in Section 8.06 of the Credit Agreement or upon ten
(10) days’ prior notice to the Bank, at such other place as designated by
Mortgagor within the State of Wisconsin, complete and accurate books of accounts
and records adequate to reflect correctly the results of the operation of the
Mortgaged Property and copies of all written contracts, leases and other
instruments which affect the Mortgaged Property, including without limitation
copies of all quotations, purchase orders and contracts obtained by Mortgagor in
the course of designing and constructing the Project. Such books,
records, contracts, leases and other instruments shall be subject to examination
and inspection at any reasonable time by the Bank, and the Bank may copy the
same at the Bank’s expense, provided that the Bank may use and/or release such
information only in connection with the administration or enforcement of this
mortgage or the other Related Documents. During the course of
construction of the Project, Mortgagor shall furnish to the Bank, at the Bank’s
request, written status reports detailing the progress of
construction.
4.14
Payment of Taxes and
Assessments
. Mortgagor shall pay, before the same become
delinquent, all real and personal property taxes, assessments (whether general
or special), gas, electric, light, power, water and sewer charges, business,
sales, use and occupation taxes, all permit and inspection fees, all license and
occupation fees, and such other charges now or hereafter levied or assessed
against the Mortgaged Property or any part thereof and, upon request, shall
exhibit to the Bank receipts for the payment of such items, except to the extent
and so long as the same are being contested in good faith by appropriate
proceedings, with adequate reserves having been provided.
4.15
Valid and Binding
Agreement
. Mortgagor covenants and warrants that this Mortgage
is a valid and enforceable obligation of Mortgagor in accordance with its terms
and that the performance by Mortgagor of the terms hereof does not contravene
any covenant in any agreement, indenture or other document affecting
Mortgagor.
ARTICLE
V
DEFAULT;
ACCELERATION
If any one or more of the following
events (herein designated as “
Events of Default
”)
shall occur:
(a)
Occurrence of
an “Event of Default” (as therein defined) under any Bond Document, the Credit
Agreement or any of the Related Documents or if a default occurs under any other
agreement, document or instrument evidencing indebtedness of Mortgagor or any
guarantor to the Bank;
(b)
Violation by any
Mortgagor of the covenants contained in Sections 4.07 and 4.08 hereof;
or
(c)
Default by
Mortgagor in due observance or performance of any other covenant, condition or
agreement on its part to be observed or performed pursuant to the terms and
provisions of this Mortgage, if such default remains uncured upon a
date thirty (30) days following the mailing or delivery of notice
thereof to Mortgagor;
then, and
upon the happening of any such event, Mortgagor shall be deemed to have
materially breached this Mortgage and the Bank may, at its option and without
notice, notice being hereby waived by Mortgagor, declare the Secured Obligations
to be forthwith due and payable, and upon such declaration all such amounts,
together with interest accrued thereon, if any, shall become and be due and
payable forthwith; and the Bank may thereupon proceed to protect and enforce its
rights hereunder, under the Bond Documents, the Credit Agreement and other
Related Documents by foreclosure proceedings or by other suit in equity, action
at law, or other appropriate proceedings.
ARTICLE
VI
REMEDIES
Upon the happening of an Event of
Default, then and in every such case:
6.01
Action or
Suit
. The Bank may proceed to protect and enforce its rights
by an action or actions at law or by a suit or suits in equity, either for the
specific performance of any covenant or agreement contained herein, or for the
foreclosure of this Mortgage, or for monetary damages, or for the enforcement of
any other appropriate legal or equitable remedy.
6.02
Receiver
. The
Bank shall be entitled as a matter of right, without notice and without giving
bond to Mortgagor, or anyone claiming under it, to have a receiver appointed for
the Bank’s benefit of all of the Mortgaged Property and of the earnings, income,
rents, issues and profits thereof, pending such proceedings, with the powers
(without limitation) to collect such earnings, income, rents, issues and
profits; to rent and remodel the rentable areas; to perform and pay any
obligations of Mortgagor under the Bond Documents, the Credit Agreement and the
other Related Documents; together with such other powers as the court making
such appointment shall confer; and Mortgagor hereby irrevocably consents to such
appointment.
6.03
Entry Upon the Mortgaged
Property
. The Bank, either itself or by its agents or
attorneys, may, in its discretion, enter upon and take complete and peaceful
possession of the Mortgaged Property, or any part or parts thereof, and may
exclude Mortgagor and its agents and servants wholly therefrom, in which case
Mortgagor covenants peacefully and quietly to yield up possession, and having
and holding the Mortgaged Property or portion thereof, the Bank may use,
operate, manage and control the Mortgaged Property, or any part thereof, and
conduct the business thereof (either itself or by its attorneys and agents), and
may collect any and all rents, issues and profits due or to become due without
prejudice to its rights to foreclosure, to appointment of a receiver and other
rights and from time to time, either by purchase, repair or construction may
maintain, restore and insure and keep insured, the buildings, structures,
improvements, fixtures, machinery, equipment and other property constituting a
part of or used in connection with the Mortgaged Property; and after paying all
of the expenses of operating the Mortgaged Property, the Bank shall apply the
monies arising therefrom to the payment of the Secured Obligations.
6.04
Foreclosure
. The
Bank may cause the Mortgaged Property to be sold at one or more foreclosure
sales, all in such manner and upon such notice as provided by
law. All proceeds of any such sale or sales, remaining after payment
of: (a) the costs and expenses of such sale or sales (including attorneys’
fees of the Bank); and (b) the Secured Obligations, shall be paid to
Mortgagor, their respective successors and assigns, or to whomsoever may be
lawfully entitled to receive the same. Notwithstanding anything
contained herein to the contrary, it is understood and agreed that the Bank may
foreclose this Mortgage without declaring the whole indebtedness evidenced by
the Bond Documents, the Credit Agreement and the other Related Documents and
intended to be secured hereby due; and, if any foreclosure sale is made because
of an Event of Default for less than the full amount which may become due under
the Bond Documents, the Credit Agreement and the other Related Documents, such
sale may be made subject to the unmatured portion of the indebtedness secured by
this Mortgage and such sale, if so made, shall not in any manner affect the
unmatured portion of the indebtedness intended to be secured by this Mortgage
but as to such unmatured portion of the debt to be secured, several sales may be
made for any other portion of the indebtedness to be secured, whether matured at
the time or subsequently occurring.
6.05
Costs of
Foreclosure
. If it becomes necessary for the Bank to commence
proceedings to foreclose this Mortgage or to commence any other suit in equity,
action at law or other appropriate proceedings, to enforce its rights under this
Mortgage, the Bond Documents, the Credit Agreement, or any of the other Related
Documents, Mortgagor agrees to pay to the Bank all costs of such suit, action or
proceeding as well as all expenses incurred in procuring title insurance and the
reasonable fees of the Bank’s attorneys in connection therewith, which costs and
fees shall be included in the judgment in any such suit, action or
proceeding.
6.06
Remedies
Cumulative
. No remedy herein conferred upon or otherwise
available to the Bank is intended to be or shall be construed to be exclusive of
any other remedy or remedies; but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder, or now or
hereafter existing at law or in equity or by statute. No delay or
omission to exercise any right or power accruing upon any default shall impair
any such right or power, or shall be construed to be a waiver of any such
default or an acquiescence therein.
ARTICLE
VII
SECURITY AGREEMENT; FIXTURE
FILING
7.01
Security Agreement; Fixture
Filing
. This Mortgage shall create a security interest in, and
the Mortgagor hereby grants to the Bank a security interest in, the Mortgaged
Property in favor of the Bank and shall constitute a Security Agreement under
the Uniform Commercial Code of Wisconsin with respect to all of the Mortgaged
Property, and the Bank shall be entitled to all of the rights of a secured
party. This Mortgage is a financing statement covering the Fixtures,
and it is intended that as to those goods and the proceeds thereof, this
Mortgage shall be effective as a financing statement filed as a fixture filing
from the date of its filing for record in the real estate records for the county
in which the Mortgaged Property is located. It is expressly agreed
that during the continuance of an Event of Default the Bank shall proceed to
dispose of any portion of the Property in accordance with the provisions of the
Uniform Commercial Code, ten (10) days’ notice by the Bank to the Mortgagor
shall be deemed to be reasonable notice under any provision of the Uniform
Commercial Code requiring such notice; provided, however, that the Bank may, at
its option, dispose of the Property in accordance with the Bank’s rights and
remedies in respect to the real estate pursuant to the provisions of this
Mortgage in lieu of proceeding under the Uniform Commercial Code. The
Mortgagor will, from time to time and as often as requested by the Bank, execute
and deliver to the Bank such financing statements, renewal affidavits,
continuation statements, inventories or other similar documents as the Bank may
reasonably request to perfect the security interest created hereby, and
Mortgagor authorizes Bank to make such filings. No failure or
omission of the Bank to request any financing statement, renewal affidavit,
continuation statement, inventory, or the like, and no failure or omission of
the Mortgagor to execute or deliver any thereof, will impair the effectiveness
of or priority of the security interest created by this Mortgage. The
Mortgagor will pay all costs of filing and/or recording of this Mortgage and any
financing statements, continuation or termination statements with respect
thereto, and any affidavits or other instruments executed, or to be executed, to
perfect, renew, continue or maintain the lien and security interest created
hereby. The Mortgagor hereby appoints the Bank, or any officer of the
Bank, as the agent and attorney-in-fact of the Mortgagor to do, at the Bank’s
option and the Mortgagor’s expense, all acts and things reasonably necessary to
perfect, and continue perfected, the lien and security interest created
hereby. In the event of foreclosure sale of personal property in
which the Bank holds a security interest granted herein, whether such sale be
held by the Bank or otherwise, such sale may be of the whole of such property or
any portion thereof and may be held together with or separately from any
foreclosure sale of the real property securing said
indebtedness. Such personal property need not be present at the place
of sale.
ARTICLE
VIII
GENERAL
8.01
Notices
. Any
notice required or permitted to be delivered hereunder by either party to the
other shall be governed by, and delivered in accordance with Section 8.06 of the
Credit Agreement.
8.02
Governing
Law
. This Mortgage shall be construed and enforced according
to the internal laws of the State of Wisconsin.
8.03
Successors and Assigns;
Partial Invalidity
. All covenants and agreements in this
Mortgage contained by or on behalf of either of the parties hereto shall be
binding upon and shall inure to the benefit of the respective successors and
assigns of Mortgagor and the Bank. Invalidation of part or all of any
one of the covenants herein contained by judgment or court order shall not
affect any of the other provisions, which shall remain in full force and
effect.
8.04
Mortgagor and Lien Not
Released
. From time to time, the Bank may, at its option,
without giving notice to or obtaining the consent of Mortgagor, Mortgagor’s
successors or assigns or of any junior lienholder or guarantors, without
liability on the Bank’s part and notwithstanding Mortgagor’s breach of any
covenant or agreement of Mortgagor in this Mortgage, extend the time for payment
of the indebtedness evidenced by the Bond Documents, the Credit Agreement and
any of the other Related Documents or any part thereof, reduce the payments
thereon, release anyone liable on any of said indebtedness, modify the terms and
time of payment of said indebtedness, release from the lien of this Mortgage any
part of the Mortgaged Property, take or release other or additional security,
reconvey any part of the Mortgaged Property, consent to any plat or plan of the
Mortgaged Property, consent to the granting of any easement, join in any
extension or subordination agreement and agree in writing with Mortgagor to
modify the terms or conditions of Bond Documents, Credit Agreement and any of
the other Related Documents or change the amounts payable
thereunder. Any actions taken by the Bank pursuant to the terms of
this Section 8.04 shall not affect the obligation of Mortgagor or
Mortgagor’s successors or assigns to pay the sums secured by this Mortgage and
to observe the covenants of Mortgagor contained herein, shall not affect the
guaranty of any person, corporation, partnership or other entity for payment of
the indebtedness secured hereby and shall not affect the lien or priority of
lien hereof on the Mortgaged Property. Mortgagor shall pay the Bank a
reasonable service charge, together with such title insurance premiums and
attorneys’ fees as may be incurred at the Bank’s option, for any such action if
taken at Mortgagor’s request.
8.05
Forbearance by the Bank Not
a Waiver
. Any forbearance by the Bank in exercising any right
or remedy hereunder, or otherwise afforded by applicable law, shall not be a
waiver of or preclude the exercise of any right or remedy. The
acceptance by the Bank of payment of any sum secured by this Mortgage after the
due date of such payment shall not be a waiver of the Bank’s rights to either
require prompt payment when due or all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of
insurance or the payment of taxes or other liens or charges by the Bank shall
not be a waiver of the Bank’s right to accelerate the maturity of the
indebtedness secured by this Mortgage, nor shall the Bank’s receipt of any
awards, proceeds or damages under Section 4.02 or 4.04 hereof operate to
cure or waive Mortgagor’s default in payment of sums secured by this
Mortgage.
8.06
Future Advances;
Cross-Collateralization
. This Mortgage shall also secure all present and
future indebtedness and obligations of the Borrower to the Bank, and shall fully
and completely cross-collateralize all such indebtedness and
obligations. This Mortgage shall also secure any and all future
advances made by the Bank to Borrower, including all costs, taxes, assessments,
insurance, expenses, and reasonable attorneys’ fees, together with interest
thereon at the Default Rate set forth in the Credit Agreement, that the Bank may
make, pay or incur under this Mortgage for the protection of the Bank or any of
its rights in connection with the Property. All of
the
foregoing sums so secured shall be superior to the rights of the holder of any
lien or encumbrance placed on the Mortgaged Property after the recording of this
Mortgage.
[Signature
Page Follows]
IN WITNESS WHEREOF, the Mortgagor has
executed this Mortgage as of the date and year first above written.
M
& W FIBERGLASS, LLC,
a
Wisconsin limited liability company
By:
/s/ Jamie L.
Mancl
Jamie L. Mancl, its sole
member
ACKNOWLEDGMENT
STATE OF
WISCONSIN
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)
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)
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ss.
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_____________COUNTY
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)
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This instrument was acknowledged before
me on the _____ day of February, 2007, by Jamie L. Mancl, known to me as its
sole member of M & W Fiberglass, LLC, a Wisconsin limited liability
company.
______________________________________________
Notary Public, State of Wisconsin
My
commission: _________________________________
This
document was drafted by
and
should be returned to:
Lisa R.
Lange
Whyte
Hirschboeck Dudek S.C.
One East
Main St., Suite 300
Madison,
WI 53703
[Signature
Page of Mortgage]
EXHIBIT
A
DESCRIPTION
OF REAL PROPERTY
Lot 1 of
Wood County Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps
at Page 190, being part of the SE ¼ of the NE ¼ of Section 10, Township 22
North, Range 6 East, City of Wisconsin Rapids, Wood County,
Wisconsin.
Tax Key
No.: Part of 34-09841 and Part of 34-09852
A-1
EXHIBIT 10.8
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
SECURITY AGREEMENT DATED FEBRUARY 28, 2007
SECURITY
AGREEMENT
Dated as
of February 28, 2007
By
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
AND
M
& W FIBERGLASS, LLC
In Favor
Of:
NEKOOSA
PORT EDWARDS STATE BANK
Relating
to
:
$4,000,000
City
of Wisconsin Rapids, Wisconsin
Industrial
Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced
Fiberglass Technologies
Project
)
SECURITY
AGREEMENT
THIS SECURITY AGREEMENT, dated as of
February 28, 2007 (this “
Agreement
”), is made
by and among ADVANCED FIBERGLASS TECHNOLOGIES, INC., a Wisconsin corporation
(the “
Corporation
”) and M
& W FIBERGLASS, LLC, a Wisconsin limited liability company (the “
LLC
,” and together
with the Corporation, are referred to herein individually as a “
Debtor
” or
collectively, “
Debtors
”), in favor
of NEKOOSA PORT EDWARDS STATE BANK, as Trustee and as Original Purchaser (“
Bank
” or “
Secured
Party
”).
RECITALS
A. The
City of Wisconsin Rapids, Wisconsin (the “
Issuer
”), will issue
its Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project) in the aggregate principal amount of
Four Million Dollars ($4,000,000) (the “
Bonds
”), pursuant to
a Bond Agreement dated as of February 28, 2007 (the “
Bond Agreement
”), by
and between the Issuer, the Debtors, the Individual Borrowers (collectively, the
Debtors and the Individual Borrowers are referred to herein as the “
Borrowers
”), Nekoosa
Port Edwards State Bank, as trustee (the “
Trustee
”) and Nekoosa
Port Edwards State Bank, as original purchaser (“
Original
Purchaser
”).
B. The
proceeds derived from the issuance of the Bonds will be loaned to the Borrowers
pursuant to the Bond Agreement, and used to finance a project consisting of (i)
the construction of an approximately 70,000 square foot manufacturing facility
to be located at 4400 Commerce Drive in the City of Wisconsin Rapids, Wisconsin
(the “
Facility
”) to be
owned by the LLC and operated by the Corporation; and (ii) the acquisition and
installation of equipment at the Facility (collectively (i) and (ii) are
referred to herein as the “
Project
”).
C. To
provide the funds to be loaned to the Borrowers for payment of the costs of the
Project, the Issuer has contracted for the sale of the Bonds to the Original
Purchaser, and the Original Purchaser has agreed to purchase such Bonds in
reliance on Borrowers’ agreement to the terms and conditions set forth in that
certain Credit Agreement dated as of February 28, 2007 by and among the
Borrowers and the Original Purchaser (the “
Credit
Agreement
”).
D. It
is a condition precedent to the Original Purchaser’s obligation to purchase the
Bonds that the Debtors shall have executed and delivered this Security Agreement
to the Bank to secure the Obligations (as defined in the Credit Agreement) and
all other indebtedness (whether presently existing or hereafter arising) of the
Borrowers to the Bank.
AGREEMENT
NOW, THEREFORE in consideration of the
mutual agreements herein contained, the parties hereto agree as
follows:
ARTICLE
I
DEFINITIONS
1.01
Definitions
. All
capitalized terms used herein and not otherwise defined below, shall have
meanings assigned to them in the Credit Agreement. The following
terms used herein have the meanings defined below:
“
Accounts
” shall mean
“accounts” as defined in Section 9-102 of the UCC, “instruments” and
“chattel paper” as defined in Section 9-102 of the UCC, and, without limiting
the generality of the foregoing, shall include: (a) any and all
rights to the payment of money or other forms of consideration of any kind now
or hereafter owing or to be owing to Debtor (whether classified under the UCC as
accounts, chattel paper, instruments, general intangibles, or otherwise)
including, but not limited to, accounts receivable, letters of credit and the
right to receive payment thereunder, chattel paper, tax refunds, insurance
proceeds, contract rights, notes, drafts, instruments, documents, acceptances,
and all other debts, obligations and liabilities in whatever form now or
hereafter owing to Debtor, all guarantees, security and liens which secure
payment of any of the foregoing, all of Debtor’s rights to goods, now owned or
hereafter acquired by Debtor, sold (delivered, undelivered, in transit or
returned) which may be represented thereby; and (b) all proceeds of any of the
foregoing.
“
Architect’s
Contract
”: shall mean any contract for architectural services
between Debtor and an architect or architectural firm for the design of the
Project.
“
Chattel Paper
”: shall
mean “chattel paper” as defined in Section 9-102(11) of the UCC.
“
Collateral
” shall
mean and include all of Debtor’s respective right, title, and interest in and to
the following, whether now owned or hereafter acquired and wherever
located:
(c)
|
Commercial
Tort Claims;
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(j)
|
Intellectual
Property;
|
(m)
|
Letter-of-Credit
Rights;
|
(n)
|
All
Debtor’s right, title and interest in and to all goods and other property,
whether or not delivered (i) the sale or lease of which gives or purports
to give rise to any Account including, but not limited to, all merchandise
returned or rejected by or repossessed from customers or (ii) securing any
Account, including all Debtor’s respective rights as an unpaid vendor or
lienor, including stoppage in transit, replevin and reclamation with
respect to such goods and other
properties;
|
(o)
|
All
guaranties, mortgages on, or security interests in real or personal
property, leases or other agreements or property securing or relating to
any Account or other Collateral, or acquired for the purpose of securing
and enforcing any item thereof;
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(p)
|
All
documents of title, policies and certificates of insurance, securities, or
other documents or instruments;
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(q)
|
All
files, correspondence, computer programs, tapes, discs and related data
processing software (owned by Debtor or in which Debtor has an interest)
which contain information identifying or pertaining to any of the
Collateral or any account debtor, or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof;
|
(r)
|
Any
and all products and proceeds of any item of the foregoing (including, but
not limited to, any claims to any items referred to in this definition,
and any claims of Debtor against third parties for loss of, damage to,
destruction of, or infringement of any or all the Collateral or for
proceeds payable under or unearned premiums with respect to policies of
insurance) in whatever form, including cash, negotiable instruments and
other instruments for the payment of money, chattel paper, security
agreements or other documents; and
|
(s)
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The
Construction Collateral.
|
“
Commercial Tort
Claims
” shall mean a “commercial tort claim” as defined under Section
9-102(13) of the UCC.
“
Construction
Collateral
” shall mean Debtor’s respective right, title, and interest in
and under: (a) the Construction Contract, and all modifications, amendments, and
additions thereto; (b) the Architect’s Contract, and all modifications,
amendments, and additions thereto; (c) the Plans and Specifications; and (d) all
permits, licenses, easements, approvals, surety bonds, contracts and agreements
relating to the Project, to the extent assignable.
“
Construction
Contract
” shall mean any construction contract between Debtor and
any construction firm for the construction of the Project.
“
Copyrights
” shall
mean all of the following now or hereafter owned by Debtor: (i) all
copyright rights in any work subject to the copyright laws of the United States
or any other country, whether as author, assignee, transferee or otherwise; and
(ii) all registrations and applications for registration or any such
copyright in the United States or any other country, including registrations,
recordings, supplemental registrations and pending applications for registration
in the United States Copyright Office.
“
Deposit Accounts
”
shall mean a “deposit account” as defined under Section 9-102(29) of the
UCC.
“
Document
” shall mean
a “document” as defined under Section 9-102(30) of the UCC.
“
Equipment
” shall mean
“equipment” as defined in Section 9-102(33) of the UCC and, without limiting the
generality of the foregoing, shall include: (a) all motor vehicles; (b) all
accessions, attachments, substitutions and replacements (including spare parts)
for any item described herein; (c) any other goods now owned or hereafter
acquired by Debtor that do not constitute Inventory and which are used or bought
for use primarily in business; and (d) all proceeds of any of the
foregoing.
“
Event of Default
”
shall have the meaning assigned to it in Section 7.01 of the Credit
Agreement.
“
Fixtures
” shall mean
“fixtures,” as defined in Section 9-102(41) of the UCC, installed on, or affixed
to, the real property described on
Schedule 1.01
attached hereto, or to the buildings or improvements situated thereon, and all
proceeds of the foregoing.
“
General Intangibles
”
shall mean “general intangibles” as defined in Section 9-102(42) of the UCC
relating to any other Collateral, and shall include, without limiting the
generality of the foregoing, all goodwill, inventions, designs, copyrights,
trademarks, tradenames, patents, licenses, applications for any of the
foregoing, government approvals, permits or authorizations for any of the
foregoing, all contract rights, including all rights under the Construction
Contract, the Architect’s Contract, or any other contract, permit, or other
document or agreement pertaining to the construction of the
Project.
“
Goods
” shall mean
“goods” as defined in Section 9-102(44) of the UCC.
“
Intellectual
Property
” shall mean all Patents, Trademarks, Copyrights, and
Licenses.
“
Inventory
” shall mean
“inventory” as defined in Section 9-102(48) of the UCC and, without
limiting the generality of the foregoing, shall include: (a) all goods held or
intended for sale or lease by Debtor; (b) all documents evidencing and general
intangibles relating to such goods; and (c) all proceeds of any of the
foregoing.
“
Investment Property
”
shall mean “investment property” as defined in Section 9-102(49) of the UCC and
all dividends, distributions and rights in connection therewith and proceeds
thereof.
“
Letter-of-Credit
Rights
” shall mean a “Letter-of-credit right” as defined under Section
9-102(51) of the UCC.
“
Licenses
” shall mean
any written agreement, now or hereafter in effect, granting to any third party
any right to use any Patent, Copyright or Trademark now or hereafter owned by
Debtor or which Debtor has the right to license, or any written agreement, now
or hereafter in effect granting to Debtor any right to use any Patent, Copyright
or Trademark owned by a third party.
“
Obligations
” shall
mean: (a) all existing and future indebtedness of Borrowers to Secured Party,
and any promissory notes taken in renewal, exchange or substitution thereof or
therefor, including interest and premium on all the foregoing and all costs of
collecting the same; (b) all of Borrower’s obligations and liabilities under the
Credit Agreement and the other Related Documents, as the same may be amended
from time to time; (c) all of Debtors’ obligations and liabilities hereunder;
(d) all other debts, obligations and liabilities of Borrowers’ to or in favor of
Secured Party, whether now existing or hereafter incurred or arising; and (e)
all of Borrowers’ obligations and liabilities under the Bond Documents, as the
same may be amended from time to time.
“
Patents
” shall mean
all of the following now or hereafter owned by the Debtor: (i) all
letters patent of the United States or any other country, all registrations and
records thereof, and all applications for letters patent of the United States or
any other country, including registrations, records and pending applications in
the United States Patent and Trademark Office or any similar offices in any
other country; and (ii) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
“
Permitted Liens
”
shall have the same meaning assigned to it in the Credit Agreement.
“
Plans and
Specifications
” shall mean the drawings and specifications for the
construction of the Project, and all revisions or amendments
thereto.
“
Trademarks
” shall
mean all of the following now or hereafter owned by Debtor: (i) all
trademarks, service marks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, trade dress, logos, other source
or business identifiers, designs, and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all registration and recording applications filed in connection
therewith, including registrations and registration applications in the United
States Patent and Trademark Office, any State of the United States or any
similar offices in any other
country
or any political subdivision thereof, and all extensions or renewals thereof;
(ii) all goodwill associated therewith or symbolized thereby; and (iii) all
other assets, rights and interests that uniquely reflect or embody such
goodwill.
“
UCC
” shall mean the
Uniform Commercial Code as adopted by, and as in effect in, the State of
Wisconsin, as the same may be amended from time to time.
ARTICLE
II
GRANT OF SECURITY
INTEREST
2.01
Security
Interest
. To secure the payment and performance of the
Obligations and for other good and valuable consideration, receipt of which is
hereby acknowledged, Debtor hereby mortgages, pledges and assigns all the
Collateral to Secured Party, and grants to Secured Party a continuing security
interest in all the Collateral.
2.02
Assignment
. To
secure the payment and performance of the Obligations and for other good and
valuable consideration, receipt of which is hereby acknowledged, Debtor assigns
unto the Secured Party all of its right, title and interest in and to the
Construction Collateral. The Debtor agrees that the Secured Party
does not assume any of the obligations or duties of Debtor under or with respect
to the Construction Collateral unless and until the Secured Party shall have
given any party thereto written notice that it has affirmatively exercised its
right to complete or cause the completion of construction of the Project
following the occurrence of an Event of Default. In the event that
the Secured Party does not personally undertake to complete construction of the
Project, the Secured Party shall have no liability whatsoever for the
performance of any of such obligations and duties. For the purpose of
completing the Project, the Secured Party may, in its absolute discretion,
reassign its right, title and interest in the Construction Collateral upon
notice to Debtor but without any requirement for Debtor’s
consent. The Debtor agrees that no material change in the terms of
the Architect’s Contract or the Construction Contract shall be valid without the
written approval of the Secured Party.
ARTICLE
III
DEBTOR’S REPRESENTATIONS AND
WARRANTIES
Each Debtor represents and warrants
that:
3.01
Location of Chief Executive
Offices and Principal Places of Business
. Each Debtor’s chief
executive office and principal place of business and the books and records
relating to the Collateral are located at the locations set forth on
Schedule
3.01
.
3.02
Location of
Collateral
. All Equipment and Fixtures are, or will be,
located at the locations set forth on
Schedule
3.02
.
3.03
Ownership of
Collateral
. The Collateral owned by each Debtor is owned free
of all encumbrances and security interests, except Permitted
Liens. Chattel paper constituting Collateral evidences a perfected
security interest in the goods covered by it, free from all other encumbrances
and security interests. No financing statement (other than that filed
by any secured party with
respect
to Permitted Liens) is on file covering the Collateral or any of
it. Debtor may grant the Security Interest in the Collateral owned by
such Debtor.
3.04
Accounts
. Each
Account and chattel paper constituting Collateral as of this date arose from the
performance of services by such Debtor from a
bona fide
sale or lease of
goods, which have been delivered or shipped to the account debtor, and for which
such Debtor has genuine invoices, shipping documents or
receipts. Each Account constituting Collateral as of this date is
genuine and enforceable against the account debtor according to its
terms. It, and the transaction out of which it arose, comply with all
applicable laws and regulations. The amount represented by such
Debtor to Secured Party as owing by each account debtor is the amount actually
owing and is not subject to setoff, credit, allowance or adjustment, except
discount for prompt payment, nor has any account debtor returned the goods or
disputed its liability.
3.05
No Defaults under
Collateral
. There has been no default as of this date
according to the terms of any Collateral and no step has been taken to foreclose
the security interest it evidences or otherwise to enforce its payment, and as
of this date, Debtor has no notice or knowledge which might impair the credit
standing of any account debtor.
3.06
Filings
. Debtor
shall ensure and warrant that fully executed (if applicable) financing
statements containing a description of the Collateral will be filed of record in
every governmental, municipal or other office in every jurisdiction located
within the United States and its respective territories and possessions or such
other analogous documents in other countries as are necessary to publish notice
of and protect the validity of and to establish a valid and perfected security
interest in favor of the Secured Party in respect of the Collateral in which a
security interest may be perfected by filing a financing statement or analogous
document in the United States and its political subdivisions, territories and
possessions pursuant to the UCC or other applicable law in such jurisdictions or
pursuant to applicable law in other countries, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law with
respect to the filing of continuation statements or other documents of similar
effect.
3.07
Validity of Security
Interests
. The Security Interest constitutes a valid and
perfected security interest in all the Collateral in which a security interest
may be perfected by filing a financing statement or analogous document in the
United States and its political subdivisions, territories and possessions
pursuant to the UCC or other applicable law in such jurisdictions.
ARTICLE
IV
DEBTOR’S
COVENANTS
From the date hereof, and thereafter
until the Obligations are satisfied in full and Secured Party terminates the
Security Interest, each Debtor covenants to Secured Party as
follows:
4.01
Filing; Notification;
Re-Filing
. Debtor shall, at its sole cost and expense, take or cause to
be taken all action which Secured Party may reasonably request and which may be
necessary or desirable in order to ensure that the Security Interest will
at all times remain a properly perfected, first-priority security interest
(subject only to Permitted Liens) and to enable Secured
Party to
exercise or enforce rights hereunder, including, but not limited
to: (a) delivering to Secured Party, endorsed or accompanied by
such instruments of assignment as Secured Party may specify, and stamping and
marking, in such manner as Secured Party may specify, any and all chattel paper,
instruments, letters and advices of credit, title certificates and documents
evidencing or forming a part of the Collateral; and (b) executing and
delivering or authorizing (as applicable) such financing statements, pledges,
designations, hypothecations, notices and assignments, in each case in form and
substance satisfactory to Secured Party, relating to the creation, validity,
perfection, maintenance or continuation of the Security Interest under the UCC
or other laws of the State of Wisconsin, the laws of such other state or states
as Secured Party may from time to time reasonably request, and the laws of the
United States of America. In the event that any rerecording or
refiling (or the filing of any statement of continuation or assignment of any
financing statement) or any repledge or reassignment, or any other action, is
required at any time to protect, preserve or maintain the Security Interest,
Debtor shall, at its sole cost and expense, cause the same to be done or taken
at such time and in such manner as may be necessary and as may be reasonably
requested by Secured Party.
4.02
Ownership of
Collateral
. Debtor shall at all times be the sole owner of each and every
item of Collateral owned by such Debtor, and shall defend the Security Interest
and Debtor’s title to the Collateral at Debtor’s own expense.
4.03
Records and
Inspections
. Debtor shall at all times keep accurate and complete records
of the Collateral owned by such Debtor, and permit Secured Party to enter upon
the Debtor’s place or places of business at any time and from time to time
during reasonable business hours, and without hindrance or delay, to inspect the
Collateral and to inspect, audit, check and make extracts from and copies of the
books, records, journals, orders, receipts and correspondence which relate to
the Collateral or other transactions between the parties hereto and the
respective general financial conditions of Debtor.
4.04
Change in Location,
Name
. Without giving Secured Party not less than thirty days’ prior
written notice thereof, Debtor shall not: (a) move its chief executive office or
the books and records relating to the Collateral from the location specified on
Schedule 3.01
;
(b) except as permitted under Section 4.06, move any Equipment or Fixtures
to a location other than those specified in Section 3.02; or (c) change its
name, identity or organizational structure.
4.05
Maintenance of Collateral;
Insurance
. Debtor shall maintain all tangible items of Collateral in good
repair and working condition. Debtor shall procure and maintain
insurance against loss, theft, destruction or damage to the Collateral for the
full replacement value thereof, and business interruption, with such insurers as
are acceptable to Secured Party, plus other insurance thereon in the amounts and
against such risks as Secured Party may specify, and promptly deliver an
original copy of each policy to Secured Party, with a standard lender’s loss
payable clause in favor of Secured Party, as well as a clause requiring the
insurer to provide Secured Party at least thirty days’ prior written notice of
the cancellation, expiration, termination or any change in the coverage afforded
under any such policy.
4.06
Disposition of
Collateral
. Debtor shall not sell, assign, transfer or otherwise dispose
of any Collateral to anyone other than Secured Party, provided that,
notwithstanding the foregoing,
so long
as no Event of Default has occurred, Equipment may be sold or disposed of if
(a) in the reasonable judgment of Debtor it is obsolete or no longer useful
in the conduct of Debtor’s business; or (b) in the ordinary course of
business,
provided
that in each
case the proceeds are used to acquire Equipment in substitution or replacement
therefor and the Debtor provides the Secured Party with evidence satisfactory to
the Secured Party that the Secured Party has a valid and enforceable first
priority perfected lien with respect to each such replacement
Equipment.
4.07
Compromise of
Accounts
. Debtor shall not, except in the ordinary course of
business and prior to an Event of Default, grant any extension of time for
payment of any Account or compromise, compound or settle the same for less than
the full amount thereof, or release wholly or partly any person liable for the
payment thereof, or allow any credit or discount whatsoever
thereon.
4.08
Liens
. Debtor
shall not pledge, grant any liens on, or grant security interests in the
Collateral, other than the Security Interest and Permitted Liens. The
Collateral shall not at any time be subject to any lien that is prior to, on a
parity with, or junior to the Security Interest, other than Permitted
Liens.
4.09
Covenants Regarding Patent,
Trademark and Copyright Collateral
.
(a)
Debtor
will, for each Patent, not do any act, or omit to do any act, whereby any Patent
which is material to the conduct of Debtor’s business may become invalidated or
dedicated to the public, and shall continue to mark any products covered by a
Patent with the relevant patent number as necessary and sufficient to establish
and preserve its maximum rights under applicable patent laws.
(b)
Debtor
will, for each Trademark material to the conduct of Debtor’s business, (i)
maintain such Trademark in full force free from any claim of abandonment or
invalidity for non-use, (ii) maintain the quality of products and services
offered under such Trademark, (iii) display such Trademark with notice of
federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c)
Debtor
will, for each work covered by a material Copyright, continue to publish,
reproduce, display, adopt and distribute the work as necessary and sufficient to
establish and preserve its maximum rights under applicable copyright
laws.
(d)
Debtor
shall notify the Secured Party immediately if Debtor knows or has reason to know
that any Patent, Trademark or Copyright material to the conduct of any business
of Debtor may become abandoned, lost or dedicated to the public, or of any
adverse determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or similar office
of any country) regarding Debtor’s ownership or any Patent, Trademark or
Copyright, its right to register the same, or to keep and maintain the
same.
(e)
In no
event shall Debtor, either itself or through any agent, employee, licensee or
designee, file an application for any Patent, Trademark or Copyright (or for the
registration of any Trademark or Copyright) with the United States Patent and
Trademark Office, United States Copyright Office or any office or agency in any
political subdivision of the United States or in any other country or any
political subdivision thereof, unless it promptly informs the Secured Party,
and, upon request of the Secured Party, executes and delivers any and all
agreements, instruments, documents and papers as the Collateral Agent may
request to evidence the Secured Party’s security interest in such Patent,
Trademark or Copyright of Debtor relating thereto or represented thereby, and
Debtor hereby appoints the Secured Party its attorney-in-fact to execute and
file such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed; such power, being coupled with an interest, is
irrevocable until the Obligations are paid in full.
(f)
Debtor
will take all necessary steps that are consistent with the practice in any
proceeding before the United States Patent and Trademark Office, United States
Copyright Office or any office or agency in any political subdivision of the
United States or in any other country or any political subdivision thereof, to
maintain and pursue each material application relating to the Patents,
Trademarks and/or Copyrights (and to obtain the relevant grant or registration)
and to maintain each issued Patent and each registration of the Trademarks and
Copyrights which is material to the conduct of the Debtor’s business, including
timely filings of applications for renewal, affidavits of use, affidavits of
incontestability and payment of maintenance fees, and, if consistent with good
business judgment, to initiate opposition, interference and cancellation
proceedings against third parties.
(g)
In the
event that any Collateral consisting of a Patent, Trademark or Copyright
material to the conduct of Debtor’s business is believed infringed,
misappropriated or diluted by a third party, the Debtor promptly shall notify
the Secured Party after Debtor learns thereof and shall, if consistent with good
business judgment, promptly sue for infringement, misappropriation, or dilution
and to recover any and all damages for such infringement, misappropriation or
dilution, and take such other actions as are appropriate under the circumstances
to protect such Collateral.
ARTICLE
V
SECURED PARTY’S
REMEDIES
Upon the occurrence of an Event of
Default:
5.01
UCC
. Secured
Party shall have all rights provided to a secured party following a default
under the UCC.
5.02
Setoff
. Secured
Party may, without prior notice or demand, set off against any credit balance or
other money held by or deposited with Secured Party, all or any part of the
Obligations.
5.03
Possession of
Collateral
. Secured Party may, at any time and from time to
time, with or without judicial process or the aid or assistance of others, enter
upon any premises in which Collateral may be located and, without resistance or
interference by either Debtor, take physical possession of any items of
Collateral and maintain such possession on either Debtor’s premises or move the
Collateral or any part thereof to such other places as Secured Party shall
choose without being liable to either Debtor on account of any losses, damage or
depreciation that may occur as a result thereof so long as Secured Party shall
not breach the peace, dispose of all or any part of the Collateral on the
premises of such Debtor, require such Debtor to assemble and make available to
Secured Party at the expense of Debtors all or any part of the Collateral at any
place and time designated by Secured Party, or to remove all or any part of the
Collateral from any premises in which any part may be located for the purpose of
effecting sale or other disposition thereof.
5.04
Notice to Account Debtors or
Obligors
. Secured Party may:
(a)
Notify, or require
either Debtor or Debtors to notify, in writing any account debtor or other
obligor with respect to any one or more of the Accounts to make payment to
Secured Party or any agent or designee of Secured Party, at such address as may
be specified by Secured Party;
(b)
Direct
any Debtor to hold all payments which they or it receives with respect to any
one or more of the Accounts in trust for Secured Party, and Debtor shall so hold
such funds without commingling them with other funds of Debtor and shall, in
accordance with the direction of Secured Party, either (i) deliver the same to
Secured Party, or any agent or designee of Secured Party, immediately upon
receipt by Debtor in the identical form received, together with any necessary
endorsements or (ii) immediately deposit them in a separate account maintained
by Secured Party, or any agent or designee of Secured Party, in which only such
payments and other proceeds of Collateral shall be deposited. When
any notice to make payments directly to Secured Party, or any such agent or
designee, shall have been given pursuant to clause (i) above, Debtor shall no
longer have any right to collect the affected Accounts. If,
notwithstanding the giving of any notice, any account debtor or other obligor
shall make payment to Debtor, Debtor shall hold all such payments it receives in
trust for Secured Party, without commingling the same with other funds of
Debtor, and shall deliver the same to Secured Party, or any such agent or
designee, immediately upon receipt by Debtor in the identical form received,
together with any necessary endorsements. Secured Party may settle or
adjust disputes and claims directly with account debtors and other obligors of
Debtor for amounts and on terms which Secured Party considers
advisable. Nothing herein contained shall be construed as requiring
or obligating Secured Party, or any such agent or designee, to make any demand,
or to make an inquiry as to the nature or sufficiency of any payment received by
it, or to present or file any claim or notice or take any action with respect to
any Accounts or the monies due or to become due thereunder or to take any steps
necessary to preserve any rights against prior parties. Secured Party
shall not have any liability to any Debtor for actions taken in good faith
pursuant to this Section 5.04. All amounts received or deposited with
Secured Party pursuant to this Section representing the proceeds of Accounts
shall be applied to the payment of the Obligations, in such order as is set
forth in Section 5.10 hereof. Secured Party may, but shall not
be obligated to, deliver any amounts received or deposited pursuant to this
Section to a Debtor
for use
by such Debtor in the ordinary course of its business, but the Security Interest
in any such proceeds delivered to such Debtor shall continue and shall not be
affected by such delivery and such Debtor shall not commingle any proceeds so
delivered with any of its other funds.
5.05
Appointment to Act for
Debtors After an Event of Default
. Debtors, effective
immediately upon the occurrence thereof and without the necessity of further
action on the part of Secured Party, and until the Event of Default is waived in
writing or cured to the sole satisfaction of Secured Party:
(a)
Irrevocably authorize
Secured Party, or any agent or designee of Secured Party, to perform any and all
the acts that Secured Party is permitted to perform under any provision of this
Agreement;
(b)
Constitute
and appoint Secured Party, or any agent or designee of Secured Party, as
Debtors’ true and lawful attorney and agent, with full power of substitution, in
the place and stead of Debtors and either in its own name or in the name of
either Debtor:
|
(i)
|
to
endorse either Debtor’s name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into
Secured Party’s possession;
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(ii)
|
to
sign either Debtor’s name on any invoice or bill of lading relating to any
Accounts, on drafts against customers, on schedules and assignments of
Accounts, on notices of assignment, financing and continuation statements
and other public records, on verifications of accounts, on notices to or
from customers and on any and all documents necessary to effectuate
drawings under letters of credit;
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(iii)
|
to
notify the post office authorities to change the address for delivery of
either Debtor’s mail to an address designated by Secured
Party;
|
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(iv)
|
to
receive, open and dispose of all mail addressed to either Debtor;
and
|
|
(v)
|
to
send requests for verification of Accounts to customers or account
debtors.
|
and
(c)
Ratifies
and approves all actions taken pursuant to the foregoing power of attorney
whether taken by Secured Party or by any other person or persons designated by
Secured Party, and Secured Party will not be liable for any acts or omissions or
for any error of judgment or mistake of fact or law other than those occasioned
by Secured Party’s gross negligence or willful misconduct. This power
shall be deemed coupled with an interest and shall be irrevocable until the
Obligations have been fully satisfied. Secured Party may appoint such
persons, firms or corporations as, in its sole discretion, it may determine, for
the
purpose of exercising any powers and taking any action permitted to be exercised
or taken by Secured Party under or pursuant to any of the provisions of this
Agreement.
5.06
No Election of
Remedies
. In addition to the foregoing remedies, Secured Party shall have
all of the rights and remedies provided to the Secured Party by the Credit
Agreement and the Related Documents. No remedy herein conferred upon
Secured Party is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
5.07
No
Marshalling
. Secured Party shall not be required to make any
demand upon or pursue or exhaust any of its rights or remedies against either
Debtor or others with respect to the payment of the Obligations, and shall not
be required to marshall the Collateral or to resort to the Collateral in any
particular order and all of the rights of Secured Party hereunder shall be
cumulative. To the extent that they lawfully may, each Debtor hereby
agrees to waive and does hereby absolutely and irrevocably waive and relinquish
the benefit and advantage of, and does hereby covenant not to assert against
Secured Party, any valuation, stay, appraisement, extension or redemption laws
now existing or which may hereafter exist which, but for this provision, might
be applicable to any sale made under the judgment, order or decree of any court,
or privately under the power of sale conferred by this Agreement or in respect
of the Collateral. To the extent they lawfully may, without limiting
the generality of the foregoing, each Debtor hereby agrees that it will not
invoke or utilize any law which might cause delay in, or impede, the enforcement
of Secured Party’s rights under this Agreement, and hereby waives the
same.
5.08
Assembly of
Collateral
. Secured Party may, at its option, demand that
either Debtor forthwith assemble at places selected by Secured Party, whether at
such Debtor’s premises or elsewhere, and each Debtor hereby covenants forthwith
so to assemble at its own expense, such items of the Collateral comprising part
of the Collateral as are designated by Secured Party, and Secured Party shall
have the right to enter upon the premises where such Collateral is located and
take possession of all such Collateral or any part thereof and thereupon such
Debtor’s rights to possession thereof shall absolutely cease and
terminate. Secured Party may proceed by appropriate court action or
actions either at law or in equity to enforce performance by Debtors of the
applicable covenants and provisions of this Agreement or to recover damages for
the breach thereof.
5.09
Sale
. Any
item of the Collateral may be sold for cash or other value in any number of lots
at public auction or private sale without demand or notice (excepting only that
the Secured Party shall give the Debtor owning such Collateral ten days’ prior
written notice of the time and place of any public sale, or of the time after
which a private sale may be made, which notice each Debtor and Secured Party
hereby agree to be reasonable). At any sale or sales of the
Collateral (except at private sale) Secured Party may bid for and purchase the
whole or any part of the property and rights so sold and, upon compliance with
the terms of such sale, may hold, exploit and dispose of such property and
rights without further accountability to such Debtor except for the proceeds of
such sale or sales. Debtor will execute and deliver, or cause to be
executed and delivered, such instruments, documents, registration statements,
assignments, waivers, certificates and affidavits, and supply or cause to be
supplied such further information and take such further action as Secured Party
shall require in connection with such sale.
5.10
Application of
Proceeds
. The proceeds of all sales and collections hereunder,
and any other moneys (including any cash contained in the Collateral), the
application of which is not otherwise herein provided for, shall be applied as
follows:
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First
, to the payment of
the reasonable costs and expenses of such collection, sale or other
realization, and all expenses, and advances made or incurred by Secured
Party in connection therewith;
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Second
, to the payment in full
of the Obligations; and
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Third
, to the payment to
the Debtors, or its successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds
which relate to the Collateral.
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As used
in this Section 5.10, “proceeds” of Collateral shall mean cash, securities and
other property realized in respect of, and distributions in kind of, Collateral,
including any thereof received under any reorganization, liquidation or
adjustment of debt of a Debtor or any issuer of or obligor on any of the
Collateral.
5.11
Costs of
Collection
. Debtors shall pay all costs and expenses which may
be incurred by Secured Party with respect thereto, including reasonable
attorneys’ fees, and all such sums shall be and become a part of the
Obligations.
5.12
Grant of License to Use
Patent, Trademark and Copyright Collateral
. For the purpose of
enabling the Secured Party to exercise rights and remedies under Article V
hereof at such time as the Secured Party shall be lawfully entitled to exercise
such rights and remedies, each Debtor hereby grants to the Secured Party an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to either Debtor) to use, license or sub-license any of the
Collateral now owned or hereafter acquired by each Debtor, and wherever the same
may be located, and including in such license reasonable access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout
thereof. The use of such license by the Secured Party shall be
exercised, at the option of the Secured Party, upon the occurrence and the
continuation of an Event of Default;
provided
that any
license, sub-license or other transaction entered into by the Secured Party in
accordance herewith shall be binding upon each Debtor notwithstanding any
subsequent cure of an Event of Default. The Secured Party agrees to
apply the net proceeds received from any license as provided in Section 5.10
hereof.
ARTICLE
VI
MISCELLANEOUS
6.01
Other
Remedies
. In addition to and not in lieu of any other right or
remedy Secured Party might have, Secured Party at any time and from time to time
at its election may (but shall not be required to) do or perform or comply with
or cause to be done or performed or complied with anything which Debtors may be
required to do or comply with and Debtors shall reimburse Secured
Party
upon demand for any cost or expense which Secured Party may incur in such
respect, together with interest thereon at the Default Rate.
6.02
Course of
Dealing
. No course of dealing between either Debtor or Debtors
and Secured Party shall operate as a waiver of any rights of it under this
Agreement or in respect of the Collateral or the Obligations. No
delay or omission on the part of Secured Party in exercising any right under
this Agreement in respect of the Collateral or any Obligations shall operate as
a waiver of such right or any other right hereunder. A waiver on any
one occasion shall not be construed as a bar to waiver of any right and/or
remedy on any future occasion. No waiver, amendment to, or other
modification of this Agreement shall be effective unless it is in writing and
signed by Secured Party.
6.03
Discharge
. If
Debtors shall absolutely and irrevocably pay in full and satisfy the Obligations
and if all financial arrangements between Debtors and Secured Party shall have
been terminated, then this Agreement and the rights hereby granted shall cease
and be void, and at the request of Debtors, and at its expense, Secured Party
shall release and discharge all the Collateral without recourse against Secured
Party and to that end shall execute and deliver to Debtors, at Debtors’ own
expense, such releases, reassignments, and other documents (or cause the same to
be done) as Debtors shall reasonably request, and Secured Party shall pay over
to Debtors any money and deliver to it any other property then held by it as
Collateral (or cause the same to be done). The receipt by Debtors of
the Collateral so delivered shall be a complete and full acquittance therefor,
and Secured Party shall thereafter be discharged from any liability or
responsibility therefor.
6.04
Appointment as Attorney and
Agent for Debtors with Respect to Security Interest
. Debtors
hereby irrevocably appoint Secured Party, or any agent or designee of Secured
Party, as their lawful attorney and agent, with full power of substitution, to
execute and deliver, on behalf of and in the name of each Debtor, such financing
statements, assignments, notices, and other documents and agreements as Secured
Party may deem necessary for the purpose of the creation, perfection,
maintenance, continuation, or enforcement of the Security Interest, under any
applicable law. Secured Party is hereby authorized to file on behalf
of and in the name of each Debtor, at Debtors’ expense, such financing
statements, assignments, mortgages, notices, pledges and other documents and
agreements in any appropriate governmental office. The right is
expressly granted to Secured Party, in its discretion, in those jurisdictions
where the same is permitted, to file one or more financing statements under the
UCC or the comparable uniform commercial code of any other jurisdiction signed
only by Secured Party, naming Debtors as debtor and naming Secured Party, as
secured party and indicating therein the types, or describing the items, of the
Collateral.
6.05
Governing Law, etc.
This Agreement shall be deemed to have been made in the State of Wisconsin and
shall be governed by the internal laws of the State of Wisconsin, except to the
extent that the UCC or the law of state in which the Collateral is located or
deemed located shall apply to the perfection and enforcement of the Security
Interest. All terms which are used in this Agreement which are
defined in the UCC shall have the same meanings herein as those terms do in the
UCC unless this Agreement shall otherwise specifically provide. The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning of any provision hereof.
6.06
Notices
. All notices,
demands and communications provided for herein or made hereunder shall be
delivered or mailed in the manner, and to the address for Debtors and Secured
Party set forth in Section 8.06 of the Credit Agreement.
6.07
Savings Clause
. In
the event that any provision hereof shall be deemed to be invalid by reason of
the operation of any law or by reason of the interpretation placed thereon by
any court, this Agreement shall be construed as not containing such provision,
but only as to such locations where such law or interpretation is operative, and
the invalidity of such provision shall not affect the validity of any remaining
provision hereof, and any and all other provisions hereof which are otherwise
lawful and valid shall remain in full force and effect.
[Signature
page follows]
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement on the day and year first above
written.
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ADVANCED FIBERGLASS TECHOLOGIES,
INC.
,
a Wisconsin
Corporation
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By:
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/s/ Jamie
L. Mancl
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Jamie
L. Mancl, President
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M & W FIBERGLASS, LLC
,
a Wisconsin Limited Liability
Company
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By:
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/s/ Jamie
L. Mancl
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Jamie
L. Mancl, its sole member
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The foregoing Agreement is hereby
confirmed and accepted as of the date
thereof.
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NEKOOSA PORT EDWARDS STATE BANK
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By:
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/s/ Robb
N. Sigler
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Robb
N. Sigler, President
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[Signature
Page Security Agreement]
SCHEDULE
1.01
Legal
Description
Lot 1 of
Wood County Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps
at Page 190, being part of the SE ¼ of the NE ¼ of Section 10, Township 22
North, Range 6 East, City of Wisconsin Rapids, Wood County,
Wisconsin.
Tax Key
No.: Part of 34-09841 and Part of 34-09852
SCHEDULE
3.01
Location of Chief Executive
Offices and Principal Places of Business
2330
South 16th Street
Wisconsin
Rapids, WI 54495
4400
Commerce Drive
Wisconsin
Rapids, WI 54495
SCHEDULE
3.02
Location of
Collateral
2330
South 16
th
Street
Wisconsin
Rapids, WI 54495
4400
Commerce Drive
Wisconsin
Rapids, WI 54495
EXHIBIT 10.9
OPTION AGREEMENT DATED JUNE 18, 2008
OPTION
AGREEMENT
THIS
OPTION AGREEMENT (this "
Agreement
") is made
and entered into as of this 18
th
day of
June, 2008 (the “
Effective Date
”), by
and between ADVANCED FIBERGLASS TECHNOLOGIES, INC., a Wisconsin corporation
("
Buyer
"), and
M & W FIBERGLASS, LLC, a Wisconsin limited liability company (the "
Company
").
RECITALS
WHEREAS,
the Company owns (i) certain real estate, fixtures and improvements comprising
approximately 14.263 acres of land and approximately 70,300 square feet of
manufacturing and office space located at 4400 Commerce Drive, Wisconsin Rapids,
Wisconsin, as more specifically described in
Exhibit A
attached
hereto (the “
Property
”);
WHEREAS,
the Company and Buyer are Co-Borrowers under that certain Bond Agreement by and
between the Company, Buyer, City of Wisconsin Rapids, Jamie L. Mancl, Jennifer
Mancl, and Nekoosa Port Edwards State Bank (the “Bank”) dated February 28,
2007 (the “
Bond
Agreement
”);
WHEREAS,
the Company has agreed to grant an option to Buyer, and Buyer has agreed to
acquire an option from the Company, for Buyer to purchase the Property from the
Company on the terms and conditions set forth in this Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants set forth in this Agreement
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Buyer agree as
follows:
ARTICLE I
GRANT
OF OPTION; OPTION FEE; PURCHASE PRICE
Section 1.1
Grant of
Option
. Subject
to the terms set forth in this Agreement, the Company hereby grants to
Buyer, and Buyer hereby accepts from the Company, an irrevocable and exclusive
option to purchase the Property (the "
Option
") on the terms
set forth in this Agreement.
Section 1.2
Option
Fee
. The
Company acknowledges its receipt from Buyer of the amount of Two Thousand Five
Hundred Dollars ($2,500) in cash (the "
Option Fee
") as
payment in full for the Option. Buyer acknowledges and agrees that
the Option Fee shall be non-refundable to Buyer except as provided
herein. If Buyer does not exercise the Option in accordance with
Section 2.1
,
then the Option Fee shall not be refunded to Buyer, and shall be retained by the
Company, except that, if the Buyer reasonably determines, after due diligence,
that the Property has such title defects that are both (A) not capable of being
insured and (B) would be reasonably expected to materially affect the value of
Property, then the Company promptly shall return the Option Fee to the
Buyer.
Section 1.3
Purchase
Price
. The
purchase price for the Property shall be Four Million Five Hundred Thousand
Dollars ($4,500,000)(the "
Purchase
Price
"). Buyer shall receive a credit at the closing against
the Purchase Price for the Option Fee.
Section 1.4
Payment of Purchase
Price
. If Buyer exercises the Option and proceeds to the
closing, the Purchase Price (as adjusted for prorations) shall be paid by Buyer
in the form of: (i) an assumption of the IRB Debt; (ii) cash at closing in the
amount of Five Hundred Thousand Dollars ($500,000); and (iii) the balance in the
form of a promissory note bearing interest at not more than twelve-month LIBOR
as of the Closing Date plus 2.75%, payable in quarterly installments of
principal and interest amortized over not more than 15 years with the unpaid
principal balance due not more than seven years after the Closing Date, and
otherwise on such other terms and conditions as the parties may agree. For
purposes of this Agreement, “
IRB Debt
” means (i)
all Obligations (as that term is defined under the Bond Agreement) of the
Company under the Bond Agreement and (ii) all obligations of the Company under
that certain Promissory Note dated February 28, 2007 in the principal amount of
$75,000 issued to the City of Wisconsin Rapids.
Section 1.5
Assumption of IRB
Debt
. At closing, Buyer shall assume and agree to perform all
of the Company’s obligations under the IRB Debt arising from and after the
closing and execute and deliver to the Company such undertaking and instruments
as will be reasonably sufficient to evidence the assumption of obligations under
this Section. Except as expressly set forth herein, Buyer is
not assuming any Liabilities of the Company, and all such Liabilities shall
remain the sole responsibility of the Company. For purposes of this
Agreement, “
Liabilities
” means
and includes any direct or indirect indebtedness, guaranty, endorsement, claim,
loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or
unfixed, known or unknown, asserted or unasserted, liquidated or unliquidated,
secured or unsecured.
ARTICLE II
EXERCISE
OF OPTION
Section 2.1
Exercise of
Option
. Buyer
shall exercise the Option, if at all, by delivering written notice thereof to
the Company during the Exercise Period (as defined herein). Any
attempt by Buyer to exercise the Option after expiration of the Exercise Period,
or by any means during the Exercise Period other than as set forth in this
Section 2.1, shall be null and void and of no force or
effect. For purposes of this Agreement, "
Exercise Period
"
shall mean the period of time commencing on the Effective Date and ending no
later than 5:00 p.m. (Central Time) on the first anniversary of the Effective
Date. “
Business
Day
” means any day other than Saturday, Sunday or any federal legal
holiday.
Section 2.2
Failure to Exercise
Option
. Upon
the expiration of the Exercise Period, (i) this Agreement shall terminate
automatically and the Option shall be null and void and of no further force or
effect without any further action by the parties, (ii) the Company shall retain
the Option Fee and (iii) the Company and Buyer shall have no further rights or
obligations under this Agreement.
Section 2.3
Disclosure
Schedules
. If Buyer validly exercises the Option in accordance
with Section 2.1, then the Company shall deliver to Buyer within fifteen
(15) days following receipt of Buyer’s written notice of exercise schedules
which identify any disclosures that are necessary to make the representations
and warranties of the Company set forth in Article IV of this Agreement true and
correct in all material respects (the “
Disclosure
Schedules
”). Notwithstanding anything to the contrary
contained in this Agreement, it is understood and agreed that the obligations of
Buyer to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to, at or prior to closing, Buyer’s reasonable
satisfaction with the form and substance of the Disclosure
Schedules. Buyer shall have until 5:00 p.m. (Central Standard time)
on the tenth (10th) day following Buyer’s receipt of the Disclosure Schedules to
provide written notice to the Company stating that it is not reasonably
satisfied with the form and substance of the Disclosure Schedules and setting
forth in reasonable detail the reasons why and the changes that would be
necessary to make Buyer reasonably satisfied with the form and substance of the
Disclosure Schedules. Buyer’s failure to timely provide such notice
shall be deemed to constitute Buyer’s irrevocable agreement that it accepts the
Disclosure Schedules as initially provided to Buyer. If Buyer timely
provides such notice, the Company shall have five (5) Business Days to
revise the Disclosure Schedules as requested by Buyer. If the Company
fails to revise the Disclosure Schedules as provided herein, Buyer may elect to
(i) accept the Disclosure Schedules as modified, if at all, and proceed
with the transaction, or (ii) terminate this Agreement by providing written
notice to the Company. If Buyer elects to terminate this Agreement as
provided in this Section, the parties shall have no further obligations to one
another under this Agreement.
ARTICLE III
CLOSING
Section 3.1
Closing Date and
Place
. The date of the closing shall be mutually determined by
the parties, but in any event shall be on or after: (i) the date that all
conditions to such closing as set forth in this Agreement have been satisfied;
and (ii) October 15, 2008 (the “Closing Date”). The closing shall
occur at the offices of Buyer or at such other location as the parties may
otherwise agree in writing.
Section 3.2
Transfer of
Title
. At the closing, the Company agrees to execute and
deliver to Buyer a warranty deed in customary form conveying the Property,
together with all rights and appurtenances therein, to Buyer free and clear of
all liens and encumbrances, excepting Permitted Liens. For purposes
hereof, “
Permitted Liens
”
shall mean (a) liens for taxes not yet due and payable; (b) zoning,
building codes and other land use laws regulating the use or occupancy of the
Property; (c) easements, covenants, conditions, restrictions and other similar
matters affecting title to the Property which do not or would not reasonably be
expected to materially impair the use or occupancy of the Property; (d) any
mortgage or lien securing the IRB Debt; (e) all matters which would be
disclosed by an accurate survey of the Property which do not or would not
reasonably be expected to materially impair the use or occupancy of the
Property; and (f) liens set forth on the Disclosure Schedules.
Section 3.3
Expenses
. All
expenses associated with the Property (excluding those expenses for which Buyer
is otherwise responsible under the terms and conditions of that certain
Lease
dated August 1, 2007 by and between the Company and Buyer), including, without
limitation, expenses for electricity, gas, water, sewer, real property taxes and
such other items that are customarily prorated in transactions of this nature,
shall be ratably prorated between Buyer and the Company as of the Closing Date
in accordance with local custom.
Section 3.4
Bank
Consent
. Notwithstanding anything to the contrary contained in
this Agreement, it is understood and agreed that the obligations of the Company
to consummate and effect the transactions contemplated hereby shall be subject
to, at or prior to closing, the Company having obtained any requisite consent,
approval, and authorization of the Bank to consummate the transactions
contemplated by this Agreement.
ARTICLE IV
TITLE
DOCUMENTS
Section 4.1
Title
Report
. The Company shall furnish and deliver to Buyer for
examination within twenty (20) days of receipt of written notice of exercise of
the Option a title report written by a title insurance company licensed by the
State of Wisconsin, showing title as required under Section 3.2 of this
Agreement. Any objections to the condition of title shall be raised
by Buyer in writing within five (5) days from delivery of the title report,
following which the Company shall have ten (10) days in which to elect in
writing whether to cure such objections to Buyer’s reasonable
satisfaction. In the event the Company does not elect to cure such
objections or affirmatively elects not to cure the same, Buyer shall, within ten
(10) days after the earlier of (a) receipt of the Company’s written election not
to cure such objections or (b) expiration of the period within which the Company
is entitled to make the foregoing election (in either case, the “
Election Deadline
”),
have the option, exercisable by written notice to the Company, either to (x)
terminate this Agreement, or (y) proceed to closing, taking title to the
Property subject to the matters that the Company has elected not to
cure. The foregoing election by Buyer must be delivered to the
Company within ten (10) days after Election Deadline. The cost of the
title report shall be paid by the Company. In the event the Bank
requires title insurance in connection with the closing, the Company shall, in
place of the title report required pursuant to this Section, provide to Buyer a
title insurance commitment for an owner’s policy of title insurance in an amount
equal to the Purchase Price and naming the Bank as additional proposed
insured. The cost of the title insurance commitment and the title
insurance policy issued with respect thereto, inclusive of full extended
coverage (other than the survey exception), and inclusive of any endorsements
issued with respect to title exceptions that do not constitute Permitted Liens,
but exclusive of any Buyer-requested endorsements, shall be paid by the
Company. Any transfer fees payable in connection with the conveyances
contemplated by this Agreement shall be paid by the Company.
ARTICLE V
REPRESENTATIONS
OF THE COMPANY
The
Company hereby represents and warrants to Buyer that the statements contained in
this
Article V
,
subject to the exceptions set forth in the Disclosure Schedules to be delivered
by
the
Company to Buyer as provided in Section 2.3 of this Agreement, are true and
correct as of the date of this Agreement and will be true and correct on the
Closing Date. Each of the representations and warranties set forth
herein shall survive the closing of the transaction contemplated by this
Agreement.
Section 5.1
Organization and
Authority
. The
Company is a corporation duly organized, validly existing and in active status
under the laws of the State of Wisconsin. The Company has the
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of the Company. This Agreement has
been duly and validly executed and delivered by the Company, and, assuming this
Agreement constitutes a valid and binding obligation of Buyer, this Agreement
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms.
Section 5.2
No
Violation
. Neither
the execution and delivery of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby will (i) constitute
a breach or violation of any provision of the articles of organization, bylaws
or any operating agreement of the Company, as amended, (ii) constitute a
breach, violation or default (or any event which, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of or
permit any other party to terminate, require the consent from or the giving of
notice to any other party to, or accelerate the performance required by, or
result in the creation of any Lien (other than Permitted Liens) upon the
Property under, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument to which the Company is bound, or
(iii) conflict with or violate any order, judgment or decree, or any
statute, ordinance, rule or regulation applicable to the
Company. For purposes of this Agreement, "
Lien
" means any lien,
security interest, pledge, charge, claim, mortgage, easement, restriction
or any other encumbrance.
Section 5.3
Title to
the
Property
. The
Company has the power and the right to sell, assign and transfer the Property,
and the Company will sell and deliver to Buyer, and upon consummation of the
transactions contemplated by this Agreement, Buyer will acquire good and
marketable title to the Property, free and clear of all Liens other than
Permitted Liens.
Section 5.4
Environmental
Conditions
. The Property is not in violation of any federal,
state, or local law, ordinance or regulation relating to the environmental
conditions on, under or about the Property, including, but not limited to, soil
and ground water conditions, and the Company has not violated any environmental
law now in existence with respect to the Property.
Section 5.5
Hazardous
Materials
. During the time in which the Company has
owned the Property, neither the Company nor, to the best of the Company’s
knowledge, any third party has used, generated, manufactured, stored, released,
or disposed of on, under, or about the Property or transported to or from the
Property any flammable, explosive, radioactive materials, hazardous wastes,
toxic substances, or related matters (“
Hazardous
Materials
”), except in conformity with the requirements of any and all
applicable laws, rules, regulations and ordinances regulating or governing the
handling and disposal thereof. For the purpose of this
Article
V, Hazardous Materials shall include, but not be limited to, substances such as
friable asbestos or those defined as “hazardous substances,” “hazardous
materials,” or “toxic substances” in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
seq.; the Hazardous Materials Transportation Act, 42 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq.; and in the regulations adopted and publications promulgated pursuant to
said laws and any amendments thereto. To the best of the Company’s
knowledge, there are no Hazardous Materials stored, released, or disposed of (i)
on, under, or about the Property, except in conformity with the requirements of
any and all applicable laws, rules, regulations and ordinances regulating or
governing the handling and disposal thereof, or (ii) on, under, or about
adjacent properties, in such a manner that their migration to the Property
appears reasonably likely.
Section 5.6
Zoning Laws;
Permits
. To the best of the knowledge of the
Company, no zoning, building, or similar law or ordinance is violated by the
maintenance, operation, or use of the Property. The Company has
received no written notice of any change contemplated in any applicable laws,
ordinances, or restriction, or any judicial or administrative action, or any
action by adjacent landowners, or natural or artificial conditions upon the
Property which would prevent, impede, limit, or render more costly in any
material way Buyer’s use of the Property consistent with the historic usage
thereof. To the best of the knowledge of the Company, all approvals
and permits necessary for the operation of the Property consistent with the
historic usage thereof have been obtained, are in full force and effect, and are
transferable to Buyer without consent or approval of any third party or
governmental entity, and the Company will transfer and assign all such permits
to Buyer at the closing.
Section 5.7
Eminent
Domain
. There are no condemnation or eminent domain
proceedings pending or, to the best of the Company’s knowledge, contemplated
against the Property or any part thereof, and the Company has received no
written notice of the desire of any public authority or other entity to take or
use the Property or any part thereof.
Section 5.8
Lease
. There
will be no leases or occupancy agreements for the Property or any part thereof
which will survive the closing, unless accepted by Buyer.
Section 5.9
Service
Contracts
. There will be no service contracts or use
agreements affecting or benefiting the Property which will survive the closing,
unless accepted by Buyer.
Section 5.10
Litigation
. There
is no suit, claim, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company which (i) would reasonably be
expected to prevent or delay the consummation of the transactions
contemplated by this Agreement or (ii) would adversely affect title to the
Property of any part thereof. The Company is not a party to or bound
by any outstanding order, writ, injunction or decree which would reasonably
be expected to prevent or delay the consummation of the transactions
contemplated hereby.
ARTICLE VI
MISCELLANEOUS
PROVISIONS
Section 6.1
Time is of the
Essence
. Time
is of the essence as to all dates and deadlines set forth in this
Agreement;
provided,
however
, that notwithstanding anything to the contrary in this
Agreement, if the time period for the performance of any covenant or obligation,
satisfaction of any condition or delivery of any notice or item required under
this Agreement shall expire on a day other than a Business Day, such time period
shall be extended automatically to the next Business Day.
Section 6.2
Assignment
.
Buyer
shall have the right to designate an assignee to receive title to the Property
by providing written notice to the Company at any time prior to closing;
provided
,
however
, that (i)
Buyer shall not be released from any of its liabilities and obligations under
this Agreement by reason of such designation or assignment, and (ii) such
designation shall not be effective until Buyer has provided the Company
with a fully executed copy of such designation or assignment and assumption
instrument, which shall be in form and substance reasonably satisfactory to the
Company.
Section 6.3
Notices
. All
notices, demands, consents, or other communications that are required or
permitted hereunder or that are given with respect to this Agreement shall be in
writing and shall be sufficient if personally delivered or sent by registered or
certified mail, facsimile message, or overnight delivery
service. Any notice shall be deemed given upon the earlier of the
date when received at, or the fifth day after the date when sent by registered
or certified mail or the day after the date when sent by overnight delivery
service or facsimile to, the address or facsimile number set forth below, unless
such address or facsimile number is changed by written notice to the other
party in accordance with this Agreement:
(a)
if to
Buyer, to:
Advanced Fiberglass
Technologies, Inc.
4400 Commerce
Drive
Wisconsin Rapids, WI
54494
Attn: Sam
Fairchild
Facsimile: 973-543-0005
with a
copy to:
Advanced Fiberglass
Technologies, Inc.
4400 Commerce
Drive
Wisconsin Rapids, WI
54494
Attn: Kenneth
Iwinski
Facsimile: 715-421-2048
(b)
if to the
Company, to:
M & W
Fiberglass, LLC
4710
Black Forest Drive
Wisconsin
Rapids, WI 54494
Attn: Jamie
L. Mancl
Facsimile:
______________
with a
copy to:
Haferman &
Ilten
1525 Main
Street
Stevens Point,
WI 54481
Attn: Mark
O. Ilten, Esq
Facsimile: 715-342-9974
Section 6.4
Counterparts
. This
Agreement may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart. Any counterpart may be executed and delivered by
facsimile signature and such facsimile signature shall be deemed an
original.
Section 6.5
Entire Agreement; Parties in
Interest
. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits and
Disclosure Schedules (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) are not intended to confer upon any third party
any rights or remedies hereunder.
Section 6.6
Expenses
. Except
as otherwise provided in this Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel), shall be paid by the party incurring such
expense.
Section 6.7
Recording
Fees
. Any
fees or charges incurred in connection with the recording of this Option
Agreement in the office of register of deeds shall be paid by the
Buyer.
Section 6.8
Amendment
. This
Agreement may not be amended, changed or modified except in writing signed by
the parties hereto.
Section 6.9
Governing Law; Jurisdiction;
Waiver of Jury Trial
. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Wisconsin without regard to principles of conflicts of
law. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED BY OR
AGAINST SUCH PARTY IN RESPECT OF ITS, HIS OR HER OBLIGATIONS HEREUNDER OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 6.10
Further
Actions
. Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
(i) execute and deliver such other documents and instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby, and (ii) use its reasonable best efforts to obtain any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Buyer or the Company or any of their
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the Company and Buyer each have caused this Option Agreement to
be executed and delivered in their names by their respective duly authorized
officers or representatives.
M
& W FIBERGLASS, LLC
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ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
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By:
/s/ Jamie L.
Mancl
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By:
/s/ Samuel
Fairchild
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Name:
Jamie L.
Mancl
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|
Name:
Samuel
Fairchild
|
|
Title:
President
|
|
|
Title:
Chief Executive
Officer
|
|
|
|
|
|
|
[Signature
Page to Option Agreement]
|
EXHIBIT
A
Lot 1 of
Wood county Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps
at Page 190, being part of the SE ¼ of the NE ¼ of Section 1o, Township 22
North, Range 6 East, City of Wisconsin Rapids, Wood County,
Wisconsin.
Tax Key
No.: Part of 34-09841 and Part of 34-09852
EXHIBIT 10.10
Contract with FPF
PURCHASE
AND SUPPLY AGREEMENT
THIS
PURCHASE AND SUPPLY AGREEMENT (this “
Agreement
”) is made
and entered into as of this 13
th
day of
October, 2008 (the “
Effective Date
”), by
and between Advanced Fiberglass Technologies, Inc., a Wisconsin corporation
(“
Purchaser
”)
and Fiberglass Piping & Fitting Company, a Wisconsin corporation (“
Supplier
”).
RECITALS
WHEREAS,
Supplier is a wholesale distributor of imported fiberglass piping and fitting
products;
WHEREAS,
Purchaser is in the business of manufacturing, marketing, selling, installing
and servicing fiberglass products throughout the United States and serves the
paper, oil, agricultural, ethanol and power industries; and
WHEREAS,
Purchaser desires to purchase from Supplier, and Supplier desires to sell to
Purchaser, fiberglass piping and fitting products upon the terms and subject to
the conditions set forth in this Agreement.
NOW,
THEREFORE, in consideration of the mutual covenants set forth herein, and other
valuable and legally sufficient consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1.
Purchase and
Sale.
Subject to the terms and conditions of this Agreement,
during the term of this Agreement, Supplier shall sell and deliver to Purchaser,
and Purchaser shall purchase and accept from Supplier, fiberglass piping and
fitting products (the “
Products
”) in such
quantities as may be requested by Purchaser from time to
time. Purchaser shall issue written purchase orders for all Products
to be purchased hereunder.
2.
Term
. The
initial term of this Agreement shall be for a period of three (3) years
commencing on the Effective Date. On the second anniversary of the
Effective Date and thereafter on each anniversary of the Effective Date unless
terminated as provided herein, this Agreement will automatically extend for an
additional year such that the remaining term shall then be two (2)
years. In the event either party elects not to extend this Agreement
as provided herein, that party shall deliver written notice thereof to the other
party not less than 180 days prior to the anniversary date on which the term
would otherwise be extended pursuant to this Section. The election of
either party not to extend the term shall not affect the then remaining term of
this Agreement.
3.
Purchase
Price
. The purchase price payable by Purchaser for the
Products (the “
Purchase Price
”)
shall be equal to Supplier’s net direct cost for such Products, including
without limitation materials, packaging, third-party storage and handling fees,
sales, use, excise and value added taxes, customs duties and other charges
assessable or levied upon the Products, and freight to Supplier’s Wisconsin
Rapids distribution facility.
4.
Delivery; Acceptance;
Passage of Title
.
(a)
Delivery;
Shipping
. All Products purchased hereunder shall be delivered
FOB – Supplier’s Wisconsin Rapids distribution facility or to such other
location(s) as may be agreed in writing between the parties from time to
time. Supplier shall be responsible for packing and loading all
Products onto a common or other carrier designated by
Purchaser. Purchaser shall be responsible for securing, scheduling
and paying for all transportation of Products from Supplier’s Wisconsin Rapids
distribution facility to Purchaser’s designated facility or designated ship to
location.
Supplier shall pack or
otherwise prepare the Products for shipment consistent with timely delivery, to
meet carriers' requirements and to safeguard Products against
damage.
(b)
Acceptance
. All
Products purchased hereunder are subject to inspection and approval by Purchaser
within a reasonable period following delivery. Execution of a
delivery receipt does not constitute acceptance of any
Products. Purchaser shall not be required to purchase and may reject
any Products which are nonconforming, damaged or
defective.
(c)
Passage of
Title
. Title and risk of loss of the Products shall
automatically pass to Purchaser upon loading onto a common or other carrier
designated by Purchaser. Upon passage of title, Purchaser shall
receive good title to Products, free and clear of all liens and
encumbrances.
5.
Payment
. Supplier
shall promptly issue invoices for the Products following delivery to
Purchaser. Payment terms for all Products purchased pursuant to this
Agreement shall be net thirty (30) days from receipt of Supplier’s
invoice. All payments to Supplier shall be made in United States
currency or cash equivalent and shall be payable in full without delay, set-off,
reduction or discount. Invoices may be delivered by email or
facsimile transmission. The balance of any invoice not paid when due
shall accrue interest at the rate of 1.5% per month until paid.
6.
Taxes and
Fees
. Any use, personal property, sales or excise tax, duty,
custom, inspection or testing fee, or any other tax, fee or charge of any nature
whatsoever imposed by any governmental authority, on Products sold or shipped by
Supplier to Purchaser hereunder, or in the possession of Purchaser, shall be
paid by Purchaser in addition to the Purchase Price. In the event
that Supplier pays any such tax, fee or charge, Purchaser shall reimburse
Supplier upon invoice by Supplier.
7.
Warranties of Supplier;
Limitations on Liability
.
(a)
Warranties
. Supplier
represents and warrants with respect to each delivery of Product as
follows:
(1)
The
Products conform to applicable specifications, are new, and are free from
defects in materials and workmanship; and
(2)
The
Products have been manufactured in compliance with the requirements of industry
standard specifications and comply with all applicable laws.
(b)
Limitation of
Warranties
. EXCEPT FOR THE LIMITED WARRANTIES SET FORTH IN
THIS SECTION, SUPPLIER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
8.
Records
. Purchaser
or Purchaser’s representatives, including its independent public accountants,
shall have the right, upon not less than five (5) days prior written notice to
Supplier and during normal business hours, to review and copy, at Purchaser’s
sole expense, all books and records of Supplier related to the net direct costs
of the Products for the purpose of auditing, verifying or otherwise determining
the Purchase Price of the Products (collectively, the “
Cost
Records
”). The Cost Records for each Product sold to Purchaser
shall be retained by Supplier for the greater of: (i) a period of one (1) year
following the final date of delivery; or (ii) such period as may be required
under applicable federal, state or local law.
9.
Insurance
. Supplier
shall maintain insurance during the term of this Agreement and for a period one
(1) year thereafter, at its sole cost and expense, as follows:
(a)
General
commercial liability insurance with combined bodily injury, property damage,
product liability, and completed operations coverage
in the amount
of $1,000,000 per occurrence, $1,000,000 in the aggregate, which names Purchaser
as an additional insured
; and
(b)
Such statutory worker’s compensation insurance for Supplier’s employees
as is required by law.
Upon request,
Supplier
shall deliver to Purchaser one or more certificates of insurance
evidencing the insurance to be obtained pursuant to this Section and providing
for notification to Purchaser at least thirty (30) days prior to the effective
date of any termination or cancellation of such insurance.
10.
Assignment
. This
Agreement may not be assigned by either party without the prior written consent
of the other party, which consent shall not be unreasonably withheld or delayed,
and any attempted assignment without such written consent shall be null and void
and without legal effect. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto and their permitted
successors and assigns. Notwithstanding the foregoing, either party
may assign this Agreement without the consent of the other party to any person,
corporation or other entity with or into which such party may be merged, or to
which all or substantially all of such party’s assets may be sold or otherwise
transferred
11.
Waiver
. The
delay or failure by either party to exercise or enforce in any one or more
instances, any of the terms or conditions of this agreement shall not constitute
or be deemed a waiver of that party’s right thereafter to enforce the terms and
conditions of this Agreement.
12.
Notices
.
Any
and all notices required or permitted hereunder shall be in writing and
delivered or sent in person, via facsimile or by registered or certified mail,
return receipt requested and postage prepaid, to the following
addresses:
Supplier: Fiberglass
Piping & Fitting Company
Attn: Jamie
Mancl
Facsimile:
Company: Advanced
Fiberglass Technologies, Inc.
Attn: General
Counsel
4400 Commerce Drive
Wisconsin Rapids, WI 54494
facsimile: 715-421-2048
Any
notice properly sent as provided above shall be deemed effective and delivered
on the date transmitted via facsimile or deposited in the mail, as the case may
be. Any party to this Agreement may change the facsimile number or
address to which notices should be sent hereunder by giving notice of such
change to the other party in accordance with the provisions of this
Section.
13.
Counterparts
. This
Agreement may be executed in two counterparts, each of which shall be deemed an
original and both of which together shall be deemed to be one and the same
Agreement.
14.
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin, without regard to
its principles of conflicts of law which would require the application of the
laws of another jurisdiction.
15.
Entire Agreement;
Amendment
. This Agreement represents the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
terminates all prior agreements, whether written or oral, entered into between
the parties with respect to said subject matter. For their
convenience, the parties may from time to time use their standard purchase
orders, sales releases, delivery schedules, acknowledgments, invoices and other
similar preprinted forms. Any terms and conditions contained in such
forms shall have no effect on the rights and obligations of the parties with
respect to the purchase and sale of the Products.
This Agreement cannot be
modified or amended except by a written instrument signed by both
parties.
IN
WITNESS WHEREOF, the parties hereto have, through their duly authorized
representatives, executed this Agreement as of the date first above
written.
FIBERGLASS
PIPING & FITTING COMPANY
|
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jamie L. Mancl
|
|
By:
|
/s/
Samuel Fairchild
|
|
|
Jamie
L. Mancl
|
|
|
Samuel
Fairchild
|
|
|
President
|
|
|
Chief
Executive Officer
|
|
-5-
EXHIBIT
99.1
UNAUDITED
FINANCIAL STATEMENTS AS OF JUNE 30, 2008
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
For
the Six Months Ended June 30, 2008 and 2007
TABLE
OF CONTENTS
|
|
PAGE
|
|
|
|
Unaudited
Consolidated Financial Statements:
|
|
|
|
|
|
Consolidated
Balance Sheets
|
2
|
|
|
|
|
Consolidated
Statements of Operations
|
3
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
4
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
5
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
34,540
|
|
|
$
|
30,739
|
|
Accounts
receivable, net of allowance for doubtful
|
|
|
|
|
|
|
|
|
accounts
of $60,000 in 2008 and $26,000 in 2007
|
|
|
1,086,286
|
|
|
|
1,152,089
|
|
Inventories
|
|
|
1,047,835
|
|
|
|
864,698
|
|
Deferred
income taxes
|
|
|
31,000
|
|
|
|
-
|
|
Prepaid
acquisition costs
|
|
|
420,000
|
|
|
|
-
|
|
Other
current assets
|
|
|
52,268
|
|
|
|
25,772
|
|
Total
current assets
|
|
|
2,671,929
|
|
|
|
2,073,298
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
5,153,954
|
|
|
|
4,817,856
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
154,000
|
|
|
|
-
|
|
Non-compete
agreement, net
|
|
|
-
|
|
|
|
139
|
|
Customer
list, net
|
|
|
20,150
|
|
|
|
24,130
|
|
Deferred
financing costs, net
|
|
|
51,217
|
|
|
|
53,128
|
|
Total
other assets, net
|
|
|
225,367
|
|
|
|
77,397
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
8,051,250
|
|
|
$
|
6,968,551
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt obligations
|
|
$
|
331,421
|
|
|
$
|
337,533
|
|
Lines
of credit - bank
|
|
|
579,008
|
|
|
|
224,378
|
|
Short-term
notes payable
|
|
|
1,412,446
|
|
|
|
500,000
|
|
Book
overdraft payable
|
|
|
31,832
|
|
|
|
168,087
|
|
Accounts
payable
|
|
|
744,919
|
|
|
|
662,409
|
|
Accrued
expenses
|
|
|
63,541
|
|
|
|
17,298
|
|
Accrued
payroll and payroll taxes
|
|
|
189,319
|
|
|
|
166,145
|
|
Due
to officer/stockholder
|
|
|
22,851
|
|
|
|
22,851
|
|
Customer
deposits
|
|
|
109,938
|
|
|
|
150,000
|
|
Total
current liabilities
|
|
|
3,485,275
|
|
|
|
2,248,701
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations, net of current portion
|
|
|
4,074,569
|
|
|
|
4,141,473
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
159,673
|
|
|
|
100,367
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock - $.01 par value; 9,000 shares authorized,
|
|
|
|
|
|
|
|
|
119.79
and 100 shares issued and outstanding, respectively
|
|
|
1
|
|
|
|
1
|
|
Additional
paid-in capital
|
|
|
635,269
|
|
|
|
215,269
|
|
Retained
earnings (deficit)
|
|
|
(303,537
|
)
|
|
|
262,740
|
|
Total
stockholders’ equity
|
|
|
331,733
|
|
|
|
478,010
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
8,051,250
|
|
|
$
|
6,968,551
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Three and Six Months Ended June 30, 2008 and 2007
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,760,208
|
|
|
$
|
1,204,270
|
|
|
$
|
3,569,325
|
|
|
$
|
2,204,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
1,589,307
|
|
|
|
1,012,782
|
|
|
|
3,029,524
|
|
|
|
1,963,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
170,901
|
|
|
|
191,488
|
|
|
|
539,801
|
|
|
|
240,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
572,377
|
|
|
|
271,845
|
|
|
|
1,024,966
|
|
|
|
491,660
|
|
Gain
on sale of land and building - variable interest entity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(401,476
|
)
|
|
|
(80,357
|
)
|
|
|
(485,165
|
)
|
|
|
(150,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(89,968
|
)
|
|
|
(17,116
|
)
|
|
|
(171,806
|
)
|
|
|
(33,687
|
)
|
Interest
income
|
|
|
-
|
|
|
|
2,780
|
|
|
|
-
|
|
|
|
2,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(89,968
|
)
|
|
|
(14,336
|
)
|
|
|
(171,806
|
)
|
|
|
(30,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before non-controlling interest in variable interest
entities
|
|
|
(491,444
|
)
|
|
|
(94,693
|
)
|
|
|
(656,971
|
)
|
|
|
(181,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
(41,351
|
)
|
|
|
(4,652
|
)
|
|
|
(94,306
|
)
|
|
|
(84,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(532,795
|
)
|
|
|
(99,345
|
)
|
|
|
(751,277
|
)
|
|
|
(265,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense/(benefit)
|
|
|
(213,000
|
)
|
|
|
-
|
|
|
|
(185,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(319,795
|
)
|
|
$
|
(99,345
|
)
|
|
$
|
(566,277
|
)
|
|
$
|
(265,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(3,166
|
)
|
|
$
|
(993
|
)
|
|
$
|
(5,607
|
)
|
|
$
|
(2,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
101
|
|
|
|
100
|
|
|
|
101
|
|
|
|
100
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Six Months Ended June 30, 2008 and 2007
|
|
(Unaudited)
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(566,277
|
)
|
|
$
|
(265,839
|
)
|
Adjustments
to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
|
|
(used
in) operating activities:
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
94,306
|
|
|
|
84,456
|
|
Depreciation
and amortization
|
|
|
167,687
|
|
|
|
48,660
|
|
Gain
on sale of land and building - variable interest entity
|
|
|
-
|
|
|
|
(100,220
|
)
|
Loss
on sale of equipment
|
|
|
3,785
|
|
|
|
-
|
|
Amortization
of debt discount for imputed interest
|
|
|
1,830
|
|
|
|
11,530
|
|
Deferred
income taxes
|
|
|
(185,000
|
)
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
65,803
|
|
|
|
120,692
|
|
Inventories
|
|
|
(183,137
|
)
|
|
|
(340,421
|
)
|
Other
current assets
|
|
|
(26,496
|
)
|
|
|
(20,873
|
)
|
Accounts
payable
|
|
|
82,510
|
|
|
|
338,529
|
|
Accrued
expenses
|
|
|
46,243
|
|
|
|
(6,359
|
)
|
Accrued
payroll and payroll taxes
|
|
|
23,174
|
|
|
|
45,040
|
|
Customer
deposits
|
|
|
(40,062
|
)
|
|
|
(2,328
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(515,634
|
)
|
|
|
(87,133
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(449,868
|
)
|
|
|
(56,833
|
)
|
Proceeds
from sale of property and equipment
|
|
|
16,000
|
|
|
|
372,670
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(433,868
|
)
|
|
|
315,837
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Increase
(decrease) in bank overdraft payable
|
|
|
(136,255
|
)
|
|
|
22,314
|
|
Net
borrowings from lines of credit -bank
|
|
|
354,630
|
|
|
|
94,944
|
|
Financing
costs for long-term debt
|
|
|
-
|
|
|
|
(10,010
|
)
|
Distributions
to stockholder - AFT
|
|
|
-
|
|
|
|
(113,282
|
)
|
Borrowings
from officer/stockholder
|
|
|
-
|
|
|
|
22,851
|
|
Net
borrowings from short-term notes payable
|
|
|
912,446
|
|
|
|
117,000
|
|
Payments
on long-term debt
|
|
|
(142,518
|
)
|
|
|
(238,952
|
)
|
Capital
distributions by variable interest entities
|
|
|
(35,000
|
)
|
|
|
(128,500
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
953,303
|
|
|
|
(233,635
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
3,801
|
|
|
|
(4,931
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
30,739
|
|
|
|
14,199
|
|
|
|
|
|
|
|
|
|
|
End
of period
|
|
$
|
34,540
|
|
|
$
|
9,268
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
1. BASIS
OF PRESENTATION
The
accompanying unaudited consolidated financial information has been prepared by
Advanced Fiberglass Technologies, Inc. (the “Company”) in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly,
it does not include all of the information and notes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair statement of
this financial information have been included. Financial results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the fiscal year as a whole or any other interim period. This
financial information should be read in conjunction with the audited
consolidated financial statements and notes included in Appendix B elsewhere in
this filing for the years ended December 31, 2007 and 2006.
2. BUSINESS
OVERVIEW
Nature of
Business
Advanced
Fiberglass Technologies, Inc., (AFT, the Company) based in Wisconsin Rapids,
Wisconsin, is a manufacturer, installer and marketer of fiberglass products
which are sold throughout the United States, but primarily in the
Midwest. The Company also has a service division that provides
installation and repair of various piping projects primarily in
Wisconsin. The Company serves the paper, oil, agricultural, ethanol
and power industries.
The
Company commenced operations in 1995 as M&W Fiberglass,
LLC. Effective January 1, 2005, all operating assets and liabilities
were transferred into a newly created S-Corporation known as Advanced Fiberglass
Technologies, Inc. which continues to be the corporate structure under which the
Company operates today. M&W Fiberglass, LLC retained ownership of
the manufacturing facility and land which is leased to Advanced Fiberglass
Technologies, Inc. Additionally, the Company terminated its
S-Corporation election effective January 1, 2008.
In June
2008, the Company entered into an agreement with Las Palmas Mobile Estates
(LPME), a “public shell” corporation, which would effect a reverse acquisition
of AFT through a Share Exchange Agreement. Under the terms and
conditions specified, AFT would become the subsidiary of LPME, and the AFT
shareholders would control approximately 72% of the outstanding shares of the
parent entity. As of August 29, 2008, the closing of this transaction
has not yet occurred.
Variable Interest
Entities
The
Company is considered the primary beneficiary in the following
entities:
M&W
Fiberglass, LLC (M&W) is a lessor of real estate to AFT and is wholly owned
by the stockholder of AFT. M&W had leased real estate at 16
th
Street
South, Wisconsin Rapids, Wisconsin to the Company, prior to February, 2007, at
$48,000 annually (22,420 square foot manufacturing facility and office
space). This property was sold in February 2007 by M&W to the
City of Wisconsin Rapids for a sales price of $372,670 with a resulting gain of
$100,220. As of August 2007, M&W began leasing a newly
constructed manufacturing and office facility (70,300 square feet) at Commerce
Drive, Wisconsin Rapids, Wisconsin to the Company at $30,000 per month from
August 1, 2007 to December 31, 2007 and $35,000 per month starting January 1,
2008 plus an annual adjustment for the cost of living increase
thereafter. M&W obtained industrial revenue bond and note
financing for the new facility through a co-borrower arrangement with
AFT. Under the terms of the lease, the Company is responsible for
paying all property taxes, repairs and insurance.
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
Fiberglass
Piping & Fitting Company (FPF) is a wholesale distributor of fiberglass
piping and is wholly owned by the stockholder of AFT. FPF started
operations as a newly formed LLC on September 16, 2006 and had limited
operations during 2006 and 2007. All FPF financing is secured by the
unlimited guarantee of the Company.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
and Basis of Presentation
The
Company consolidates its financial results in accordance with Financial
Accounting Standards Board, or FASB, Interpretation No. 46R,
Consolidation of Variable Interest
Entities,
or FIN 46R, which requires a company to consolidate entities
determined to be variable interest entities (VIEs), for which the Company is
deemed to be the VIE’s primary beneficiary. The Company has determined that
M&W Fiberglass, LLC (M&W) and Fiberglass Piping & Fitting Company
(FPF) are VIEs and that AFT is the primary beneficiary of such VIEs, as defined
by FIN 46R. M&W owns the manufacturing facility which is leased to the
Company and FPF is a wholesale distributor of fiberglass pipe fittings to the
Company and other third-party companies. The sole stockholder of AFT
is the 100% owner of these companies which results in AFT holding a significant
influence over their continuing operations. Although AFT holds no legal
ownership in the VIEs, as a result of AFT guaranteeing the debt of M&W and
FPF, this would suggest the VIEs cannot support and finance their operations on
their own, and AFT would likely absorb any expected future losses. As
such, the Company has concluded that AFT is required to consolidate the VIEs. As
of June 30, 2008, AFT has funded no losses of the VIEs.
As of and
for the six months ended June 30, 2008 and 2007, the financial statements and
footnotes of AFT have been presented on a consolidated basis to include its
variable interests in M&W and FPF. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The
effect of the VIEs’ consolidation on the Company’s consolidated balance sheet at
June 30, 2008, was an increase in the Company’s assets and liabilities of
$3,694,654 and $3,514,262, respectively. The liabilities of the VIEs
consolidated by the Company do not represent additional claims on the Company’s
general assets; rather they represent claims against the specific assets of the
VIEs. As stated above though, the Company has guaranteed certain debts of the
VIEs. Likewise, the assets of the VIEs consolidated by the Company do
not represent additional assets available to satisfy claims against the
Company’s general assets. For the six months ended June 30, 2008, the revenue of
the VIEs represented $306,976 or 8.6% of the consolidated revenue of the
Company. For the six months ended June 30, 2007, the revenue of the VIEs
represented $56,329 or 2.6% of the consolidated revenue of the Company. Through
consolidation, the Company recognizes all net losses of the VIEs in excess of
the equity in those VIEs which currently is none. The Company recognizes net
earnings of the VIEs only to the extent it is recovering losses previously
recognized with respect to the VIEs. Earnings of the VIEs in excess of the
Company’s previously recognized losses with respect to that VIE are eliminated
from the Company’s earnings and are attributed to the respective equity owner of
the VIEs by recording such earnings as non-controlling interest in variable
interest entities on the Company’s consolidated financial statements. During the
six months ended June 30, 2008 and 2007, the VIEs experienced a combined net
income of $94,306 and $84,456, respectively, which accordingly, resulted in a
non-controlling interest expense.
Revenue
Recognition
The
Company derives revenue primarily from the sale of the Company’s manufactured
products (tanks, piping, & ductwork), installation of those tanks on
occasion and service/repair. In accordance with SEC Staff Accounting
Bulletin No. 104, “Revenue Recognition” (“SAB 104”), revenue is recognized when
persuasive evidence of an arrangement exists, the price is fixed and
determinable, and transfer of title has occurred, services have been rendered or
delivery has occurred per contract terms and collection of the
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
related
receivable is reasonably assured. At times, customer deposits and other receipts
are received and are deferred and recognized when earned. Shipping
and handling costs are classified as a cost of goods sold
component.
Most of
the Company’s products are sold without installation services
included. These product only sales are generally recognized into
revenue at the time of shipment and if all other contractual obligations have
been satisfied. When the Company provides a combination of products
and installation services, the arrangement is evaluated under Emerging Issues
Task Force Issue (“EITF”) No. 00-21 “Revenue Arrangements with Multiple
Deliverables”. Most installation work is generally done in a short
period of time (less than 30 days) and the corresponding revenue is recorded
upon the completion of the installation and all contractual obligations have
been met.
For any
service/repair, most work is performed on a time and material basis and revenue
is recognized upon performance.
AFT
provides a standard one year warranty for product and service sales. Accruals
necessary for product warranties are estimated based upon historical warranty
costs which in the past have been immaterial to the financial statements as a
whole. As of June 30, 2008, no accrual for warranty expense has been
recorded due to immateriality.
Income
Taxes
The
Company, with the consent of its stockholder, had elected under the Internal
Revenue Code to be an S-Corporation. In lieu of corporate income
taxes, the stockholders of an S-Corporation are taxed on their proportionate
share of the Company’s taxable income. Therefore, no provision or
liability for federal or state income taxes has been recorded prior to January
1, 2008.
Effective
January 1, 2008, the Company terminated its S-Corporation
election. The Company is operating as a C-Corporation in 2008 and
will be subject to income and deferred taxes on future taxable income or
losses.
As
previously noted, the Company consolidates its financial results under the
provisions of FIN 46R. For income tax purposes, however, the Company
is not considered a consolidated entity. As a result, income
generated by M&W and FPF, as well as any losses recognized, are excluded
from AFT’s net income (loss) which is ultimately reported in the Company’s
corporate tax returns.
Earnings (Loss) Per
Share
Basic
earnings (loss) per share is computed by dividing net income (loss) applicable
to common shareholders by the weighted average number of common shares
outstanding during the periods presented. Diluted earnings (loss) per
share is determined using the weighted average number of common shares
outstanding during the periods presented, adjusted for the dilutive effect of
common stock equivalents, consisting of shares that might be issued upon
exercise of options, warrants, and conversion of convertible debt. In
periods where losses are reported, the weighted average number of common shares
outstanding excludes common stock equivalents, because their inclusion would be
anti-dilutive.
As of
June 30, 2008 and 2007, there were no common stock equivalents.
Effect of Recently Issued
Accounting Standards
In
February 2007, the FASB issued Statement of Financial Accounting Standards
Statement No. 159,
The Fair
Value Option for Financial Assets and Financial Liabilities—Including an
Amendment of FASB
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
Statement No. 115
(“SFAS
159”). This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. This standard is effective
for financial statements issued for fiscal years beginning after November 15,
2007. We adopted the provisions of SFAS 159 on January 1, 2008. The Company did
not elect to measure any of our financial assets or liabilities using the fair
value option of SFAS 159. The Company will assess at each measurement date
whether to use the fair value option on any future financial assets or
liabilities as permitted pursuant to the provisions of SFAS 159.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157,
Fair Value
Measurements
(“SFAS 157”). This standard clarifies the principle that
fair value should be based on the assumptions that market participants would use
when pricing an asset or liability. Additionally, it establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions. In
February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”),
which delayed the effective date by which companies must adopt the provisions of
SFAS 157. FSP 157-2 defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years. The adoption of this standard is not anticipated to have a material
impact on our financial position, results of operations, or cash
flows.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141R,
Business
Combinations
(“SFAS 141R”), which establishes principles and requirements
for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141R is effective for fiscal years beginning after December
15, 2008. Early adoption is not permitted. The Company is currently evaluating
the effect of the adoption of SFAS 141R, but does not presently anticipate it
will have a material impact on its consolidated financial position or results of
operations.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160,
Noncontrolling Interests
in Consolidated Financial Statements—an amendment of ARB No. 51
(“SFAS
160”), which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. The Company has evaluated the effect of the
adoption of SFAS 160, but does not presently anticipate it will have a material
effect on its consolidated financial position or results of
operations.
4. INVENTORY
Inventories
consist of the following:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
291,960
|
|
|
$
|
326,839
|
|
Work
in progress
|
|
|
387,859
|
|
|
|
248,527
|
|
Finished
goods
|
|
|
334,253
|
|
|
|
289,332
|
|
Inventory
deposits
|
|
|
33,763
|
|
|
|
-
|
|
Total
|
|
$
|
1,047,835
|
|
|
$
|
864,698
|
|
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
5. PROPERTY
AND EQUIPMENT, NET
Property
and equipment are as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
41,265
|
|
|
$
|
41,265
|
|
Buildings
and improvements
|
|
|
3,531,010
|
|
|
|
3,523,265
|
|
Machinery
and equipment
|
|
|
1,541,659
|
|
|
|
1,256,202
|
|
Vehicles
and trailers
|
|
|
372,734
|
|
|
|
229,995
|
|
Computer
equipment
|
|
|
164,698
|
|
|
|
127,727
|
|
Furniture
and office equipment
|
|
|
98,443
|
|
|
|
89,896
|
|
|
|
|
5,749,809
|
|
|
|
5,268,350
|
|
Less
accumulated depreciation
|
|
|
(595,855
|
)
|
|
|
(450,494
|
)
|
Net
property and equipment
|
|
$
|
5,153,954
|
|
|
$
|
4,817,856
|
|
Depreciation
expense was $161,657 and $41,344 for the six months ended June 30, 2008 and
2007, respectively.
The cost
and accumulated amortization of equipment under capital lease as of June 30,
2008 was $21,075 and $1,405, respectively. The cost and accumulated amortization
of equipment under capital lease as of December 31, 2007 was $21,075 and $351,
respectively.
6. INTANGIBLE
ASSETS
Intangible
assets are as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Non-compete
agreement
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
Customer
list
|
|
|
74,434
|
|
|
|
74,434
|
|
Deferred
financing costs
|
|
|
55,397
|
|
|
|
55,397
|
|
|
|
|
134,831
|
|
|
|
134,831
|
|
Less
accumulated amortization
|
|
|
(63,464
|
)
|
|
|
(57,434
|
)
|
Net
intangible assets
|
|
$
|
71,367
|
|
|
$
|
77,397
|
|
Amortization
expense was $6,030 and $7,316 for the six months ended June 30, 2008 and 2007,
respectively. Amortization expense for the next five years is as
follows:
2008
- remaining
|
|
$
|
5,896
|
|
2009
|
|
|
9,158
|
|
2010
|
|
|
7,398
|
|
2011
|
|
|
6,218
|
|
2012
|
|
|
5,429
|
|
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
7. FINANCING
ARRANGEMENTS
Lines of Credit -
Bank
The
Company utilizes lines of credit to fund current operations. The
lines typically extend one year and are automatically renewed on an annual
basis. Lines of credit outstanding are as follows:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
AFT
has a revolving line of credit with Nekoosa Port Edwards State Bank
(NPESB) that provides for maximum borrowings of $250,000, bears interest
at a fixed rate of 6.75% at June 30, 2008 and matures in May
2009. The line is secured by all business assets of AFT, an
assignment of life insurance on the officer/stockholder, a mortgage on
property owned by M&W, and an unlimited guaranty by
FPF
|
|
$
|
149,008
|
|
|
$
|
105,000
|
|
|
|
|
|
|
|
|
|
|
AFT
has a revolving line of credit with the same bank noted above that
provides for maximum borrowings of $430,000, bears interest at a fixed
rate of 6.75% at June 30, 2008 and is due on demand. The line
is secured by all business assets of AFT, an assignment of life insurance
on the officer/stockholder, a mortgage on M&W, and an unlimited
guaranty by FPF and its stockholder
|
|
|
430,000
|
|
|
|
70,500
|
|
|
|
|
|
|
|
|
|
|
FPF
had a revolving line of credit with the same bank noted above that
provides for maximum borrowings of $125,000, bears interest at a fixed
rate of 8.25% at December 31, 2007 and was paid off March 28,
2008. The line was secured by all business assets of AFT, an
assignment of life insurance on the officer/stockholder, a mortgage on
property owned by M&W, and an unlimited guaranty by FPF and its
stockholder
|
|
|
-
|
|
|
|
48,878
|
|
|
|
|
|
|
|
|
|
|
Total
lines of credit – bank
|
|
$
|
579,008
|
|
|
$
|
224,378
|
|
Short-Term Notes
Payable
AFT and
FPF use short-term notes payable from NPESB to fund bulk purchases of inventory
and large jobs in addition to utilizing their lines of credit. The
underlying inventory and customer purchase orders serve as specific collateral
for these notes. In addition, the short-term notes are also typically
secured by all business assets of each respective company. Short-term
notes payable includes a $300,000 unsecured note that was issued to a
stockholder and is due upon demand. For the FPF short-term notes, AFT
guarantees the notes as well. The notes bear interest at fixed
rates. The notes are typically twelve months or
less. Short-term notes payable are as follows:
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
|
|
March
31, 2008
|
|
|
December
31, 2007
|
|
AFT
|
|
$
|
900,000
|
|
|
$
|
120,000
|
|
FPF
|
|
|
512,466
|
|
|
|
380,000
|
|
Total
|
|
$
|
1,412,466
|
|
|
$
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Weighted
average interest rate
|
|
|
7.54
|
%
|
|
|
8.25
|
%
|
Long-Term Debt
Obligations
Long-term
debt obligations are as follows:
|
|
June
30,
|
|
|
December
31,
|
|
AFT
debt
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
US
Bank - a term loan secured by a vehicle, interest rate of 6.59%, due
August 2009, monthly payments of $406 and was paid off June 4,
2008
|
|
$
|
-
|
|
|
$
|
4,652
|
|
|
|
|
|
|
|
|
|
|
NPESB
- a term loan secured by 15 ton deck crane, interest rate of 7.25%, due
October 2010, monthly payments of $948
|
|
|
22,357
|
|
|
|
27,429
|
|
|
|
|
|
|
|
|
|
|
NPESB
- a term loan secured by all general business assets of the Company and a
stockholder guarantee; interest rate of 6.75%, due on demand, monthly
payments of $898
|
|
|
54,466
|
|
|
|
58,516
|
|
|
|
|
|
|
|
|
|
|
NPESB
- an industrial revenue bond term loan, secured by equipment, and a
stockholder guarantee; contains restrictive financial covenants, interest
rate of 5.75%, due July 2014, monthly payments of $7,266
|
|
|
443,400
|
|
|
|
473,515
|
|
|
|
|
|
|
|
|
|
|
NPESB
- an industrial revenue bond term loan, secured by equipment, and a
stockholder guarantee; contains restrictive financial covenants, interest
rate of 5.75%, due July 2014, monthly payment of $7,266
|
|
|
437,933
|
|
|
|
401,203
|
|
|
|
|
|
|
|
|
|
|
City
of Wisconsin Rapids, a term loan, secured by all assets and a stockholder
guarantee; contains various operating covenants of which the Company is in
compliance, interest rate 2%, due April 2012, monthly payments of
$4,499
|
|
|
461,997
|
|
|
|
484,221
|
|
|
|
|
|
|
|
|
|
|
Yale
Financial Services, a capital lease term loan, secured by two Yale
forklifts, interest rate 7.7%, due October 2010, monthly payments of
$657
|
|
|
16,802
|
|
|
|
20,027
|
|
|
|
|
|
|
|
|
|
|
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
M&W
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City
of Wisconsin Rapids, a $75,000 term loan, secured by owner guarantees;
imputed interest at 8% resulting in an original issue discount with an
unamortized balance of $29,070 at June 30, 2008, balloons in August
2014
|
|
|
45,930
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
NPESB
– an industrial revenue bond term loan, secured by real estate,
stockholder and AFT guarantees; contains restrictive financial covenants,
interest rate of 5.50%, due July 2027, monthly payment of
$20,766
|
|
|
2,923,105
|
|
|
|
2,965,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,405,990
|
|
|
|
4,479,006
|
|
Less
current portion of long-term obligations
|
|
|
(331,421
|
)
|
|
|
(337,533
|
)
|
|
|
|
|
|
|
|
|
|
Total
long-term debt obligations, net of current portion
|
|
$
|
4,074,569
|
|
|
$
|
4,141,473
|
|
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
Maturities
of long-term debt obligations are as follows:
2008
- remaining
|
|
$
|
190,904
|
|
2009
|
|
|
284,273
|
|
2010
|
|
|
293,874
|
|
2011
|
|
|
295,340
|
|
2012
|
|
|
561,904
|
|
Thereafter
|
|
|
2,779,695
|
|
|
|
$
|
4,405,990
|
|
At
December 31, 2007, the Company was not in compliance with various restrictive
financial covenants contained in the industrial revenue bonds. The
tangible net worth covenant requires the Company to maintain at least $600,000
in net worth. The debt service coverage ratio covenant requires the
Company to maintain at least 1.25 coverage. The indebtedness to
tangible net worth ratio requires the Company to maintain a ratio of less than
3.5 to 1.0. The Company, subsequent to December 31, 2007, has
received waiver letters on these covenant defaults from the lenders and these
violated covenants are waived through September 30, 2009 and will not be
remeasured again until December 31, 2009.
8. SHAREHOLDERS’
EQUITY
On June
26, 2008, the Company issued 19.79 shares of common stock to an unrelated party
in exchange for consulting services related to the potential reverse acquisition
of AFT by LPME. The stock was valued at $420,000, which was the
estimated fair market value of the Company’s common stock, and was recorded as
Prepaid Acquisition Costs on the June 30, 2008 balance sheet since the
transaction has not yet been consummated. If the reverse acquisition
is not completed, these shares will be transferred back to the Company and
cancelled.
9. INCOME
TAXES
Effective
January 1, 2008, the Company terminated its S-Corporation election and is now
operating as a C-Corporation which is subject to income and deferred taxes on
taxable income and losses. As a result of the tax status conversion, an initial
$110,000 of net deferred tax liabilities were recorded as income tax expense
during the six months ended June 30, 2008. Additionally, the Company recorded a
tax benefit relating to the loss incurred for the six months ended June 30,
2008.
The
income tax provision consisted of the following for the six months ended June
30, 2008:
|
|
2008
|
|
Currently
payable (refundable)
|
|
$
|
-
|
|
Deferred
tax expense
|
|
|
(295,000
|
)
|
|
|
|
(295,000
|
)
|
|
|
|
|
|
Establishment
of the net deferred tax liabilities as of January 1, 2008 due to change in
tax status
|
|
|
110,000
|
|
Total
income tax provision
|
|
$
|
(185,000
|
)
|
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
Significant
components of the Company’s estimated deferred tax assets and liabilities at
June 30, 2008 are as follows:
|
|
2008
|
|
Deferred
tax assets:
|
|
|
|
Accounts
receivable allowance
|
|
$
|
24,000
|
|
Accrued
liabilities
|
|
|
7,000
|
|
Net
operating loss carry forwards
|
|
|
272,000
|
|
Total
deferred tax assets
|
|
|
303,000
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
Accumulated
depreciation
|
|
|
(118,000
|
)
|
Net
deferred tax asset
|
|
$
|
185,000
|
|
Deferred
tax components included in the Company’s balance sheet at June 30, 2008 are as
follows:
|
|
2008
|
|
Current
deferred tax asset
|
|
$
|
31,000
|
|
Long-term
deferred tax asset
|
|
|
154,000
|
|
Net
deferred tax liability
|
|
$
|
185,000
|
|
10. COMMITMENTS
AND RELATED PARTY TRANSACTIONS
Manufacturing and Office
Facility Lease
The
Company leases its manufacturing facility at Commerce Drive, Wisconsin Rapids,
WI with M&W who is considered a variable interest entity of the Company.
This lease was established on August 1, 2007 for a 20 year term. From
August 1, 2007 to December 31, 2007, the Company paid $30,000 per
month. Starting on January 1, 2008, the lease calls for monthly
payments of $35,000 with an annual adjustment for a cost of living
increase.
Total
lease payments to M&W for the six months ended June 30, 2008 and 2007 were
$210,000 and $24,000, respectively.
The
Company also leases office space in Hastings, MI for its Field Services
Division. This lease was established on March 1, 2008 for a one year term.
Monthly lease payments are $925.
Various
other operating leases expiring through March 2013 were entered into for
equipment and vehicles during the six months ended June 30, 2008. The monthly
payment for all operating leases totals $2,401.
Future
minimum operating lease payments for all leases for the years ending December 31
are as follows:
2008
- remaining
|
|
$
|
229,958
|
|
2009
|
|
|
450,667
|
|
2010
|
|
|
448,817
|
|
2011
|
|
|
434,302
|
|
2012
|
|
|
430,825
|
|
Thereafter
|
|
|
6,126,804
|
|
|
|
$
|
8,121,373
|
|
Advanced
Fiberglass Technologies, Inc.
Notes
to Financial Statements (Unaudited)
Three
and Six Months Ended June 30, 2008 and 2007
Other Related Party
Transactions
AFT
purchased fiberglass pipe fittings from FPF totaling $61,232 and
$63,484 for the six months ended June 30, 2008 and 2007, respectively. FPF
purchased various manufacturing services from AFT totaling $8,643 and $486 for
the six months ended June 30, 2008 and 2007, respectively.
11. SUBSEQUENT
EVENT
In August
2008, the Company received loan proceeds of $1,214,838 from LPME in anticipation
of the acquisition of AFT being consummated. This loan will fund AFT’s field
service operations start-up costs and down payments required on purchases of
field winding equipment.
12. SALES
AND COST OF SALES
The table
below is a summary of operations for Products and Components and Service and
Installation activities for the three and six months ended June 30,
2008.
|
|
Three
Months Ended June 30, 2008
|
|
|
|
Products
& Components
|
|
|
Service
& Installation
|
|
|
Total
|
|
Net
sales
|
|
$
|
1,164,720
|
|
|
$
|
595,488
|
|
|
$
|
1,760,208
|
|
Cost
of sales
|
|
|
1,150,640
|
|
|
|
438,667
|
|
|
|
1,589,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
14,080
|
|
|
$
|
156,821
|
|
|
$
|
170,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2008
|
|
|
|
Products
& Components
|
|
|
Service
& Installation
|
|
|
Total
|
|
Net
sales
|
|
$
|
2,715,507
|
|
|
$
|
853,818
|
|
|
$
|
3,569,325
|
|
Cost
of sales
|
|
|
2,348,901
|
|
|
|
680,623
|
|
|
|
3,029,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
$
|
366,606
|
|
|
$
|
173,195
|
|
|
$
|
539,801
|
|
15
EXHIBIT
99.2
AUDITED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
Years
Ended December 31, 2007 and 2006
TABLE
OF CONTENTS
|
|
PAGE
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
2
|
|
|
|
Consolidated
Financial Statements:
|
|
|
|
|
|
Balance
Sheets
|
3
|
|
|
|
|
Statements
of Income
|
4
|
|
|
|
|
Statements
of Stockholder’s Equity
|
5
|
|
|
|
|
Statements
of Cash Flows
|
6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholder of
Advanced
Fiberglass Technologies, Inc.
We have
audited the accompanying consolidated balance sheets of Advanced Fiberglass
Technologies, Inc. as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholder’s equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Fiberglass Technologies,
Inc. as of December 31, 2007 and 2006, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/
Carver Moquist & O’Conner, LLC
Bloomington,
Minnesota
March 20,
2008
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
December
31, 2007 and 2006
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
30,739
|
|
|
$
|
14,199
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
of
approximately $26,000 in 2007 and $22,000 in 2006
|
|
|
1,152,089
|
|
|
|
764,604
|
|
Inventories,
net
|
|
|
864,698
|
|
|
|
340,351
|
|
Other
current assets
|
|
|
25,772
|
|
|
|
13,025
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,073,298
|
|
|
|
1,132,179
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
4,817,856
|
|
|
|
596,508
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets:
|
|
|
|
|
|
|
|
|
Non-compete
agreement, net
|
|
|
139
|
|
|
|
1,806
|
|
Customer
list, net
|
|
|
24,130
|
|
|
|
36,015
|
|
Deferred
financing costs, net
|
|
|
53,128
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets, net
|
|
|
77,397
|
|
|
|
37,821
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,968,551
|
|
|
$
|
1,766,508
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt obligations
|
|
$
|
337,533
|
|
|
$
|
218,939
|
|
Lines
of credit - bank
|
|
|
224,378
|
|
|
|
159,462
|
|
Short-term
notes payable
|
|
|
500,000
|
|
|
|
153,000
|
|
Book
overdraft payable
|
|
|
168,087
|
|
|
|
215,390
|
|
Accounts
payable
|
|
|
662,409
|
|
|
|
170,995
|
|
Accrued
expenses
|
|
|
17,298
|
|
|
|
17,571
|
|
Accrued
payroll and payroll taxes
|
|
|
166,145
|
|
|
|
52,889
|
|
Due
to officer/stockholder
|
|
|
22,851
|
|
|
|
-
|
|
Customer
deposits
|
|
|
150,000
|
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,248,701
|
|
|
|
990,574
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations, net of current portion
|
|
|
4,141,473
|
|
|
|
151,727
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
100,367
|
|
|
|
75,671
|
|
|
|
|
|
|
|
|
|
|
Stockholder's
equity:
|
|
|
|
|
|
|
|
|
Common
stock - $.01 par value; 9,000 shares
|
|
|
|
|
|
|
|
|
authorized,
100 shares issued and outstanding
|
|
|
1
|
|
|
|
1
|
|
Additional
paid-in capital
|
|
|
215,269
|
|
|
|
215,269
|
|
Retained
earnings
|
|
|
262,740
|
|
|
|
333,266
|
|
|
|
|
|
|
|
|
|
|
Total
stockholder's equity
|
|
|
478,010
|
|
|
|
548,536
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholder's equity
|
|
$
|
6,968,551
|
|
|
$
|
1,766,508
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF INCOME
For
the Years Ended December 31, 2007 and 2006
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,541,256
|
|
|
$
|
4,663,305
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
5,215,245
|
|
|
|
3,711,715
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,326,011
|
|
|
|
951,590
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,085,521
|
|
|
|
587,483
|
|
Gain
on sale of land and building - variable interest entity
|
|
|
(100,220
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
340,710
|
|
|
|
364,107
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(132,274
|
)
|
|
|
(53,153
|
)
|
Interest
income
|
|
|
2,783
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(129,491
|
)
|
|
|
(53,153
|
)
|
|
|
|
|
|
|
|
|
|
Income
before non-controlling interest in variable interest
entities
|
|
|
211,219
|
|
|
|
310,954
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
(168,195
|
)
|
|
|
(9,288
|
)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
43,024
|
|
|
$
|
301,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
|
|
$
|
430
|
|
|
$
|
3,017
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDER’S EQUITY
For
the Years Ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Stockholder's
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
100
|
|
|
$
|
1
|
|
|
$
|
215,269
|
|
|
$
|
95,762
|
|
|
$
|
311,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301,666
|
|
|
|
301,666
|
|
Stockholder's
distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,162
|
)
|
|
|
(64,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
100
|
|
|
|
1
|
|
|
|
215,269
|
|
|
|
333,266
|
|
|
|
548,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,024
|
|
|
|
43,024
|
|
Stockholder's
distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,550
|
)
|
|
|
(113,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
100
|
|
|
$
|
1
|
|
|
$
|
215,269
|
|
|
$
|
262,740
|
|
|
$
|
478,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2007 and 2006
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
43,024
|
|
|
$
|
301,666
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
(used
in) operating activities:
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
168,195
|
|
|
|
9,288
|
|
Depreciation
and amortization
|
|
|
150,065
|
|
|
|
96,302
|
|
(Gain)
loss on disposal of property and equipment
|
|
|
(88,046
|
)
|
|
|
392
|
|
Amortization
of debt discount for imputed interest
|
|
|
12,945
|
|
|
|
5,039
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(387,485
|
)
|
|
|
(531,509
|
)
|
Inventories,
net
|
|
|
(524,347
|
)
|
|
|
(175,973
|
)
|
Other
current assets
|
|
|
(12,747
|
)
|
|
|
(10,485
|
)
|
Accounts
payable
|
|
|
491,414
|
|
|
|
160,762
|
|
Accrued
expenses
|
|
|
(273
|
)
|
|
|
15,591
|
|
Accrued
payroll and payroll taxes
|
|
|
113,256
|
|
|
|
31,086
|
|
Customer
deposits
|
|
|
147,672
|
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
113,673
|
|
|
|
(95,513
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(190,948
|
)
|
|
|
(156,200
|
)
|
Proceeds
from sale of property and equipment
|
|
|
372,670
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
181,722
|
|
|
|
(156,200
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Increase
(decrease) in bank overdraft payable
|
|
|
(47,303
|
)
|
|
|
83,968
|
|
Net
borrowings from lines of credit -bank
|
|
|
64,916
|
|
|
|
155,462
|
|
Financing
costs for long-term debt
|
|
|
(10,010
|
)
|
|
|
-
|
|
Distributions
to stockholder - AFT
|
|
|
(113,550
|
)
|
|
|
(64,162
|
)
|
Borrowings
from officer/stockholder
|
|
|
22,851
|
|
|
|
-
|
|
Net
borrowings from short-term notes
|
|
|
347,000
|
|
|
|
153,000
|
|
Payments
on long-term debt
|
|
|
(399,260
|
)
|
|
|
(45,479
|
)
|
Capital
distributions by variable interest entities
|
|
|
(143,499
|
)
|
|
|
(44,701
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(278,855
|
)
|
|
|
238,088
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
16,540
|
|
|
|
(13,625
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
14,199
|
|
|
|
27,824
|
|
|
|
|
|
|
|
|
|
|
End
of year
|
|
$
|
30,739
|
|
|
$
|
14,199
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
1. BUSINESS
OVERVIEW
Nature of
Business
Advanced
Fiberglass Technologies, Inc., (AFT, the Company) based in Wisconsin Rapids,
Wisconsin, is a manufacturer, installer and marketer of fiberglass products
which are sold throughout the United States, but primarily in the
Midwest. The Company has a service division that provides
installation and repair of various piping projects primarily in
Wisconsin. The Company serves the paper, oil, agricultural, ethanol
and power industries.
The
Company commenced operations in 1995 as M&W Fiberglass,
LLC. Effective January 1, 2005, all operating assets and liabilities
were transferred into a newly created S-Corporation known as Advanced Fiberglass
Technologies, Inc. which continues to be the corporate structure under which the
Company operates today. M&W Fiberglass, LLC retained ownership of
the manufacturing facility and land which is leased to Advanced Fiberglass
Technologies, Inc.
Variable Interest
Entities
The
Company is considered the primary beneficiary in the following
entities:
M&W
Fiberglass, LLC (M&W) is a lessor of real estate to AFT and is wholly owned
by the stockholder of AFT. M&W had leased real estate at 16
th
Street
South, Wisconsin Rapids, Wisconsin to the Company, prior to February, 2007, at
$48,000 annually (22,420 square foot manufacturing facility and office
space). This property was sold in February 2007 by M&W to the
City of Wisconsin Rapids for a sales price of $372,670 with a resulting gain of
$100,220. As of August 2007, M&W began leasing a newly
constructed manufacturing and office facility (70,300 square feet) at Commerce
Drive, Wisconsin Rapids, Wisconsin to the Company at $30,000 per month from
August 1, 2007 to December 31, 2007 and $35,000 per month starting January 1,
2008 plus an annual adjustment for the cost of living increase
thereafter. M&W obtained industrial revenue bond and note
financing for the new facility through a co-borrower arrangement with
AFT. Under the terms of the lease, the Company is responsible for
paying all property taxes, repairs and insurance.
Fiberglass
Piping & Fitting Company (FPF) is a wholesale distributor of fiberglass
piping and is wholly owned by the stockholder of AFT. FPF started
operations as a newly formed LLC on September 16, 2006 and had limited
operations during 2006 and 2007. All FPF financing is secured by the
unlimited guarantee of the Company.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
and Basis of Presentation
The
Company consolidates its financial results in accordance with Financial
Accounting Standards Board, or FASB, Interpretation No. 46R,
Consolidation of Variable Interest
Entities,
or FIN 46R, which requires a company to consolidate entities
determined to be variable interest entities (VIEs), for which the Company is
deemed to be the VIE’s primary beneficiary. The Company has determined that
M&W Fiberglass, LLC (M&W) and Fiberglass Piping & Fitting Company
(FPF) are VIEs and that AFT is the primary beneficiary of such VIEs, as defined
by FIN 46R. M&W owns the manufacturing facility which is leased to the
Company and FPF is a wholesale distributor of fiberglass pipe fittings to the
Company and other third-party companies. The sole stockholder of AFT
is the 100% owner of these companies which results in AFT holding a significant
influence over their continuing operations. Although AFT holds no legal
ownership in the VIEs, as a result of AFT guaranteeing the debt of M&W and
FPF, this would suggest the VIEs cannot support and finance their operations on
their own, and AFT would likely absorb any expected future losses. As
such, the Company has concluded that AFT is required to consolidate the VIEs. As
of December 31, 2007, AFT has funded no losses of the VIEs.
As of and
for the years ended December 31, 2007 and 2006, the financial statements and
footnotes of AFT have been presented on a consolidated basis to include its
variable interests in M&W and FPF. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The
effect of the VIEs’ consolidation on the Company's consolidated balance sheet at
December 31, 2007, was an increase in the Company's assets and liabilities of
$3,680,009 and $3,535,294, respectively. At December 31, 2006, as a result of
consolidating the VIEs, the Company's assets and liabilities increased by
$416,370 and $299,521, respectively. The liabilities of the VIEs consolidated by
the Company do not represent additional claims on the Company's general assets;
rather they represent claims against the specific assets of the VIEs. As stated
above though, the Company has guaranteed certain debts of the
VIEs. Likewise, the assets of the VIEs consolidated by the Company do
not represent additional assets available to satisfy claims against the
Company's general assets. For the year ended December 31, 2007, the revenue of
the VIEs represented $168,836 or 2.6% of the consolidated revenue of the
Company. For the year ended December 31, 2006, the revenue of the VIEs
represented only $12,798 of the consolidated revenue of the Company. Through
consolidation, the Company recognizes all net losses of the VIEs in excess of
the equity in those VIEs which currently is none. The Company recognizes net
earnings of the VIEs only to the extent it is recovering losses previously
recognized with respect to the VIEs. Earnings of the VIEs in excess of the
Company's previously recognized losses with respect to that VIE are eliminated
from the Company's earnings and are attributed to the respective equity owner of
the VIEs by recording such earnings as non-controlling interest in variable
interest entities on the Company's consolidated financial statements. During the
year ended December 31, 2007 and 2006, the VIEs experienced net income of
$168,195 and $9,288, respectively, which accordingly, resulted in a
non-controlling interest expense.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements. Estimates also effect the reported amounts of revenues
and expenses during the reporting period. Accordingly, actual results
could differ from those estimates.
Concentrations of
Risk
Cash
Deposits
The
Company maintains it cash in high-quality financial institutions. The
balances, at times, may exceed the $100,000 federally insured
limits.
Credit Risk and Major
Customers
Financial
instruments that may subject the Company to significant concentrations of credit
risk consist primarily of trade receivables. The Company grants
credit to its customers throughout the United States in the normal course of
business. Customer creditworthiness is routinely monitored and
collateral is not required. The following is a schedule of
significant sales to customers for the years ended December 31, 2007 and 2006
and significant customer accounts receivable balances at December 31, 2007 and
2006:
|
|
Percentage
of
Total
Sales
|
|
Percentage
of Trade Accounts Receivable
|
Customer
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
1
|
|
47.30%
|
|
32.30%
|
|
46.60%
|
|
34.40%
|
2
|
|
12.2
|
|
13.8
|
|
4.1
|
|
4.1
|
3
|
|
11.6
|
|
13.7
|
|
2.9
|
|
11.7
|
|
|
71.10%
|
|
59.80%
|
|
53.60%
|
|
50.20%
|
Labor
Force
A
significant part of the company’s production labor force is covered by two
collective bargaining agreements which expire in May 2009.
Cash and Cash
Equivalents
For
purposes of balance sheet presentation, the Company considers all unrestricted
demand deposits, money market funds, savings funds and investments purchased
with an original maturity of three months or less to be cash and cash
equivalents.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
Trade Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount. The
allowance for doubtful accounts is the Company’s best estimate of the amount of
probable credit losses in the Company’s existing accounts
receivable. The Company determines the allowance based on historical
write-off experience by the Company. The Company reviews its
allowance for doubtful accounts monthly. Individual accounts with past due
balances over 90 days are specifically reviewed for
collectibility. All other balances are reviewed on a pooled
basis. Account balances are charged off against accounts receivable,
as bad debt, after all means of collection have been exhausted and the potential
for recovery is considered remote. Finance charges are accrued
monthly, but not recognized on past due trade receivables until management
determines that such charges will be collected.
Inventories
Inventories
are stated at the lower of cost or market, with cost determined on the first-in,
first-out (FIFO) basis. Allowances are recorded for estimated excess
and obsolete inventories based primarily on forecasts of product demand and
estimated production requirements.
Property and
Equipment
Property
and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective
assets. Maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized. As items are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in operating income.
The
estimated useful lives for computing depreciation are as follows:
|
|
Years
|
Building
|
|
40
|
Building
and land improvements
|
|
15
|
Computer
equipment
|
|
3
to 5
|
Manufacturing
equipment
|
|
5
to 10
|
Furniture
and office equipment
|
|
5
to 10
|
Vehicles
and trailers
|
|
5
|
Intangible
Assets
Intangible
assets are stated at cost. They comprise a non-compete agreement and
customer list acquired through an asset purchase acquisition in 2005. Also,
included is deferred financing costs incurred with the bond financing for the
construction of the new M&W manufacturing facility in 2007. The
non-compete agreement is being amortized on the straight-line method over its
3-year life. The customer list is being amortized 33% per year based
on a discounted cash flow analysis. The financing costs are being
amortized over the life of the related bonds ranging from 7 to 20 years, and is
being charged to interest expense.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
Impairment of Long-Lived
Assets
The
recoverability of intangible assets and other long-lived assets is assessed
periodically or whenever adverse events or changes in circumstances or business
climate indicate that the expected cash flows previously anticipated warrant a
reassessment. When such reassessments indicate the potential of
impairment, all business factors are considered and, if the carrying value of
such intangible assets and other long-lived assets are not likely to be
recovered from future undiscounted operating cash flows, they will be written
down for financial reporting purposes to their fair values. There
were no impairment charges for the years ended December 31, 2007 and
2006.
Revenue
Recognition
The
Company derives revenue primarily from the sale of the Company’s manufactured
products (tanks, piping, & ductwork), installation of those tanks on
occasion and service/repair. In accordance with SEC Staff Accounting
Bulletin No. 104, “Revenue Recognition” (“SAB 104”), revenue is recognized when
persuasive evidence of an arrangement exists, the price is fixed and
determinable, transfer of title has occurred, services have been rendered or
delivery has occurred per contract terms and collection of the related
receivable is reasonably assured. At times, customer deposits and other receipts
are received and are deferred and recognized when earned. Shipping
and handling costs are classified as a cost of goods sold
component.
Most of
the Company’s products are sold without installation services
included. Revenue for product only sales is generally recognized at
the time of shipment and if all other contractual obligations have been
satisfied. When the Company provides a combination of products and
installation services, the arrangement is evaluated under Emerging Issues Task
Force Issue (“EITF”) No. 00-21 “Revenue Arrangements with Multiple
Deliverables.” Most installation work is generally done in a short
period of time (less than 30 days) and the corresponding revenue is recorded
upon the completion of the installation and all contractual obligations have
been met.
For any
service/repair, most work is performed on a time and material basis and revenue
is recognized upon performance.
AFT
generally provides a standard one year warranty for product and service sales.
Accruals necessary for product warranties are estimated based upon historical
warranty costs which in the past have been immaterial to the financial
statements as a whole. As of March 31, 2008 no accrual for warranty expense has
been recorded due to immateriality.
Income
Taxes
The
Company, with the consent of its stockholder, has elected under the Internal
Revenue Code to be an S-Corporation. In lieu of corporation income
taxes, the stockholders of an S-Corporation are taxed on their proportionate
share of the Company’s taxable income. Therefore, no provision or
liability for federal or state income taxes is provided in these financial
statements.
Effective
January 1, 2008, the Company terminated its S-Corporation
election. The Company will be operating as a C-Corporation in 2008
and will be subject to income and deferred taxes on future taxable income or
losses.
As
previously noted, the Company consolidates its financial results under the
provisions of FIN 46R. For income tax purposes, however, the Company
is not considered a consolidated entity. As a result, income
generated by M&W and FPF, as well as any losses recognized, are excluded
from AFT’s net income which is ultimately passed through to the Company’s
stockholder.
Advertising
Expense
The
Company expenses advertising costs as incurred. Advertising expense
amounted to $41,548 and $12,426 for the years ended December 31, 2007 and 2006,
respectively.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
Fair Value of Financial
Instruments
The
respective carrying value of certain on-balance sheet financial instruments
approximates their fair values. These financial instruments include
cash, accounts receivable, accounts payable, accrued liabilities and
debt. Fair values were assumed to approximate cost or carrying values
as most of the debt was incurred recently and the assets were acquired within
one year.
Comprehensive Income
(Loss)
Comprehensive
income (loss) includes net income (loss) and items defined as other
comprehensive income (loss). Items defined as other comprehensive
income (loss) include items such as foreign currency translation adjustments and
unrealized gains and losses on certain marketable securities. For the
year ended December 31, 2007 and 2006, there were no adjustments to net income
to arrive at comprehensive income.
Earnings Per
Share
Basic
earnings per share is computed by dividing net income applicable to common
shareholders by the weighted average number of common shares outstanding during
the periods presented. Diluted earnings per share is determined using
the weighted average number of common shares outstanding during the periods
presented, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of options, warrants,
and conversion of convertible debt. In periods where losses are
reported, the weighted average number of common shares outstanding excludes
common stock equivalents, because their inclusion would be
anti-dilutive.
As of
December 31, 2007 and 2006, there were no common stock equivalents.
3. INVENTORY,
NET
Inventories consist of the following at
December 31, 2007 and 2006:
|
2007
|
|
2006
|
|
|
|
|
|
|
Raw
materials
|
$
|
326,839
|
|
$
|
145,295
|
Work
in progress
|
|
248,527
|
|
|
109,797
|
Finished
goods
|
|
289,332
|
|
|
85,259
|
Total
|
$
|
864,698
|
|
$
|
340,351
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
4. PROPERTY
AND EQUIPMENT, NET
Property
and equipment are as follows at December 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
41,265
|
|
|
$
|
41,960
|
|
Buildings
and improvements
|
|
|
3,523,265
|
|
|
|
314,176
|
|
Machinery
and equipment
|
|
|
1,256,202
|
|
|
|
393,323
|
|
Vehicles
and trailers
|
|
|
229,995
|
|
|
|
140,364
|
|
Computer
equipment
|
|
|
127,727
|
|
|
|
98,950
|
|
Furniture
and office equipment
|
|
|
89,896
|
|
|
|
20,732
|
|
|
|
|
5,268,350
|
|
|
|
1,009,505
|
|
Less
accumulated depreciation
|
|
|
(450,494
|
)
|
|
|
(412,997
|
)
|
Net
property and equipment
|
|
$
|
4,817,856
|
|
|
$
|
596,508
|
|
Depreciation
expense was $134,244 and $76,897 for the years ended December 31, 2007 and 2006,
respectively.
The cost
and accumulated amortization of equipment under capital lease as of December 31,
2007 is $21,075 and $351, respectively.
5. INTANGIBLE
ASSETS
Intangible
assets are as follows at December 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Non-compete
agreement
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
Customer
list
|
|
|
74,434
|
|
|
|
74,434
|
|
Deferred
financing costs
|
|
|
55,397
|
|
|
|
-
|
|
|
|
|
134,831
|
|
|
|
79,434
|
|
Less
accumulated amortization
|
|
|
(57,434
|
)
|
|
|
(41,613
|
)
|
Net
intangible assets
|
|
$
|
77,397
|
|
|
$
|
37,821
|
|
Amortization
expense was $15,821 and $19,405 for the years ended December 31, 2007 and 2006,
respectively. Amortization expense for the next five years is as
follows:
2008
|
$
|
11,926
|
2009
|
|
9,158
|
2010
|
|
7,398
|
2011
|
|
6,218
|
2012
|
|
5,429
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
6. FINANCING
ARRANGEMENTS
Lines of Credit -
Bank
The
Company utilizes lines of credit to fund current operations. The
lines typically extend one year and are automatically renewed on an annual
basis. Lines of credit outstanding as of December 31, 2007 and 2006
are as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
AFT
has a revolving line of credit with Nekoosa Port Edwards State Bank
(NPESB) that provides for maximum borrowings of $250,000, bears interest
at a fixed rate of 7.75% at December 31, 2007 and matures in May
2008. The line is secured by all business assets of AFT, an
assignment of life insurance on the officer/stockholder, a mortgage on
property owned by M&W, and an unlimited guaranty by
FPF
|
|
$
|
105,000
|
|
$
|
138,017
|
|
|
|
|
|
|
|
AFT
has a revolving line of credit with the same bank noted above that
provides for maximum borrowings of $430,000, bears interest at a fixed
rate of 8.25% at December 31, 2007 and is due on demand. The
line is secured by all business assets of AFT, an assignment of life
insurance on the officer/stockholder, a mortgage on M&W, and an
unlimited guaranty by FPF and its stockholder
|
|
|
70,500
|
|
|
-
|
|
|
|
|
|
|
|
FPF
has a revolving line of credit with the same bank noted above that
provides for maximum borrowings of $125,000, bears interest at a fixed
rate of 8.25% at December 31, 2007 and is due on demand. The
line is secured by all business assets of AFT, an assignment of life
insurance on the officer/stockholder, a mortgage on property owned by
M&W, and an unlimited guaranty by FPF and its
stockholder
|
|
|
48,878
|
|
|
21,445
|
|
|
|
|
|
|
|
Total
lines of credit – bank
|
|
$
|
224,378
|
|
$
|
159,462
|
Short-Term Notes
Payable
AFT and
FPF use short-term notes payable from NPESB to fund bulk purchases of inventory
and large jobs in addition to utilizing their lines of credit. The
underlying inventory and customer purchase orders serve as specific collateral
for these notes. In addition, the short-term notes are also typically
secured by all business assets of each respective company. For the
FPF short-term note, AFT guarantees the note as well. The notes bear
interest at fixed rates. The notes are typically twelve months or
less. Short-term notes payable are as follows as of December
31:
|
|
2007
|
|
2006
|
AFT
|
|
$
|
120,000
|
|
$
|
73,000
|
FPF
|
|
|
380,000
|
|
|
80,000
|
Total
|
|
$
|
500,000
|
|
$
|
153,000
|
|
|
|
|
|
|
|
Weighted
average interest rate
|
|
|
8.25%
|
|
|
8.01%
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
Long-Term Debt
Obligations
Long-term
debt obligations as of December 31, 2007 and 2006 are as follows:
AFT debt
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
US
Bank - a term loan secured by a vehicle, interest rate of 6.59%, due
August 2009, monthly payments of $406
|
|
$
|
4,652
|
|
$
|
11,533
|
|
|
|
|
|
|
|
NPESB
- a term loan secured by 15 ton deck crane, interest rate of 7.25%, due
October 2010, monthly payments of $948
|
|
|
27,429
|
|
|
37,886
|
|
|
|
|
|
|
|
NPESB
- a term loan secured by all general business assets of the Company and a
stockholder guarantee; interest rate of 6.75%, due February 2008, monthly
payments of $898
|
|
|
58,516
|
|
|
67,669
|
|
|
|
|
|
|
|
Former
stockholder – a $126,000 term loan, secured by assets of the Company and a
stockholder guarantee; imputed interest rate of 7.0% resulting in a
discount of $10,110 at December 31, 2006; due February 2011, with monthly
payments of $1,500
|
|
|
-
|
|
|
64,890
|
|
|
|
|
|
|
|
NPESB
- an industrial revenue bond term loan, secured by equipment, and a
stockholder guarantee; contains restrictive financial covenants of which
the Company is not in compliance with at December 31, 2007, interest rate
of 5.75%, due July 2014, monthly payments of $7,266
|
|
|
473,515
|
|
|
-
|
|
|
|
|
|
|
|
NPESB
- an industrial revenue bond term loan, secured by equipment, and a
stockholder guarantee; contains restrictive financial covenants of which
the Company is not in compliance with at December 31, 2007, interest rate
of 5.75%, due July 2014, monthly payment of 7,266
|
|
|
401,203
|
|
|
-
|
|
|
|
|
|
|
|
City
of Wisconsin Rapids, a term loan, secured by all assets and a stockholder
guarantee; contains various operating covenants of which the Company is in
compliance, interest rate 2%, due April 2012, monthly payments of
$4,499
|
|
|
484,221
|
|
|
-
|
|
|
|
|
|
|
|
Yale
Financial Services, a capital lease term loan, secured by two Yale
forklifts, interest rate 7.7%, due October 2010, monthly payments of
$657
|
|
|
20,027
|
|
|
-
|
|
|
|
|
|
|
|
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
M&W debt
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
City
of Wisconsin Rapids, a $75,000 term loan, secured by owner guarantees;
imputed interest at 8% resulting in a discount of $30,900 at December 31,
2007, balloons in August 2014
|
|
|
44,100
|
|
|
-
|
|
|
|
|
|
|
|
NPESB
– an industrial revenue bond term loan, secured by real estate,
stockholder and AFT guarantees; contains restrictive financial covenants
of which the Company is not in compliance at December 31, 2007, interest
rate of 5.75%, due July 2027, monthly payment of $20,766
|
|
|
2,965,343
|
|
|
-
|
|
|
|
|
|
|
|
NPESB
– a term loan secured by real estate, interest rate of 6.5%, due February
2007, monthly payment of $1,868
|
|
|
-
|
|
|
188,688
|
|
|
|
|
|
|
|
|
|
|
4,479,006
|
|
|
370,666
|
Less
current portion of long-term obligations
|
|
|
(337,533)
|
|
|
(218,939)
|
|
|
|
|
|
|
|
Total
long-term debt obligations, net of current portion
|
|
$
|
4,141,473
|
|
$
|
151,727
|
Maturities
of long-term debt obligations are as follows:
2008
|
|
$
|
337,533
|
|
2009
|
|
|
299,992
|
|
2010
|
|
|
299,186
|
|
2011
|
|
|
300,420
|
|
2012
|
|
|
567,636
|
|
Thereafter
|
|
|
2,674,239
|
|
|
|
$
|
4,479,006
|
|
At
December 31, 2007, the Company was not in compliance with various restrictive
financial covenants contained in the industrial revenue bonds. The
tangible net worth covenant requires the Company to maintain at least $600,000
in net worth. The debt service coverage ratio covenant requires the
Company to maintain at least 1.25 coverage. The indebtedness to
tangible net worth ratio requires the Company to maintain a ratio of less than
3.5 to 1.0. The Company, subsequent to December 31, 2007, has
received waiver letters on these covenant defaults from the lenders, and
these violated covenants will not be remeasured again until December 31,
2009.
7. EMPLOYEE
PROFIT SHARING BONUS PLAN
The
Company provides a discretionary profit-sharing bonus plan for their employees,
whereby the Company may contribute a designated percent, annually, out of
earnings and profits. Profit sharing plan expense was $9,136 and
$30,468 for the years ended December 31, 2007 and 2006,
respectively.
ADVANCED
FIBERGLASS TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2007 and 2006
8. COMMITMENTS
AND RELATED PARTY TRANSACTIONS
Manufacturing and Office
Facility Lease
The
Company leases its manufacturing facility at Commerce Drive, Wisconsin Rapids,
WI with M&W who is considered a variable interest entity of the Company.
This lease was established on August 1, 2007 for a 20 year term. From
August 1, 2007 to December 31, 2007, the Company paid $30,000 per
month. Starting on January 1, 2008, the lease calls for monthly
payments of $35,000 with an annual adjustment for a cost of living
increase.
Total
lease payments to M&W for the years ended December 31, 2007 and 2006 were
$178,000 and $48,000, respectively.
Future
minimum operating lease payments for the years ending December 31 are as
follows:
2008
|
$
|
420,000
|
2009
|
|
420,000
|
2010
|
|
420,000
|
2011
|
|
420,000
|
2012
|
|
420,000
|
Thereafter
|
|
6,125,000
|
|
$
|
8,225,000
|
Other Related Party
Transactions
AFT
purchased fiberglass pipe fittings from FPF totaling $143,448 and $3,836 for the
years ended December 31, 2007 and 2006, respectively.
9. SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
118,510
|
|
|
$
|
46,303
|
|
Building
construction period interest capitalized
|
|
$
|
59,377
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment with
|
|
|
|
|
|
|
|
|
long-term
debt
|
|
$
|
4,449,268
|
|
|
$
|
-
|
|
Deferred
financing costs incurred with
|
|
|
|
|
|
|
|
|
long-term
debt
|
|
$
|
45,387
|
|
|
$
|
-
|
|
17
EXHIBIT
99.3
PRO
FORMA COMBINED FINANCIAL STATEMENTS
AS OF
JUNE 30, 2008
Pro-forma Consolidated Financial Statements and
Footnotes
LAS
PALMAS MOBILE ESTATES
PRO FORMA
COMBINED FINANCIAL INFORMATION
The
accompanying pro forma combined financial statements present the historical
financial information of Las Palmas Mobile Estates (LPME), as adjusted for the
planned acquisition of Advanced Fiberglass Technologies, Inc.
(AFT). For financial reporting purposes, the business consolidation
is to be accounted for as an additional capitalization of AFT with AFT as the
acquirer (reverse acquisition). The operations of AFT will be the
continuing operations of LPME.
The
accompanying pro forma combined balance sheet presents the historical financial
information of LPME as of June 30, 2008, as adjusted for the acquisition of AFT,
accounted for as a reverse acquisition.
The
accompanying pro forma combined statements of operations for the six months
ended June 30, 2008 and the year ended December 31, 2007, combines the
historical financial information of AFT for the six months ended June 30, 2008,
and the year ended December 31, 2007 with the historical information of LPME for
the six months ended June 30, 2008, and the year ended December 31, 2007,
respectively, as if the acquisition had occurred on January 1,
2007.
The pro
forma combined financial statements have been prepared by management, based on
the historical financial statements of LPME and AFT. These pro forma
combined financial statements may not be indicative of the results that actually
would have occurred if the combination had been in effect on the dates indicated
or which may be obtained in the future. The pro forma combined
financial statements should be read in conjunction with the historical financial
statements of LPME for the six months ended June 30, 2008 and the year ended
December 31, 2007, and with the historical statements of AFT for the six months
ended June 30, 2008 and the year ended December 31, 2007.
LAS
PALMAS MOBILE ESTATES
(A
DEVELOPMENT STAGE COMPANY)
PRO FORMA
COMBINED BALANCE SHEETS
JUNE 30,
2008
|
|
Las
Palmas Mobile Estates
|
|
|
Advanced
Fiberglass
|
|
|
Pro
Forma Adjustments
|
|
|
Notes
|
|
|
Pro
Forma Combined
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
34,540
|
|
|
$
|
-
|
|
|
|
|
|
$
|
34,540
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
1,086,286
|
|
|
|
-
|
|
|
|
|
|
|
1,086,286
|
|
Inventories
|
|
|
-
|
|
|
|
1,047,835
|
|
|
|
-
|
|
|
|
|
|
|
1,047,835
|
|
Prepaid
acquisition costs
|
|
|
|
|
|
|
420,000
|
|
|
|
(420,000
|
)
|
|
(4)
|
|
|
|
-
|
|
Deferred
income taxes
|
|
|
-
|
|
|
|
31,000
|
|
|
|
-
|
|
|
|
|
|
|
31,000
|
|
Other
current assets
|
|
|
-
|
|
|
|
52,268
|
|
|
|
-
|
|
|
|
|
|
|
52,268
|
|
Total
current assets
|
|
|
-
|
|
|
|
2,671,929
|
|
|
|
(420,000
|
)
|
|
|
|
|
|
2,251,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
5,153,954
|
|
|
|
-
|
|
|
|
|
|
|
5,153,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
-
|
|
|
|
154,000
|
|
|
|
-
|
|
|
|
|
|
|
154,000
|
|
Customer
list, net
|
|
|
|
|
|
|
20,150
|
|
|
|
|
|
|
|
|
|
|
20,150
|
|
Deferred
financing costs, net
|
|
|
-
|
|
|
|
51,217
|
|
|
|
-
|
|
|
|
|
|
|
51,217
|
|
Total
other assets
|
|
|
-
|
|
|
|
225,367
|
|
|
|
-
|
|
|
|
|
|
|
225,367
|
|
Total
assets
|
|
$
|
-
|
|
|
$
|
8,051,250
|
|
|
$
|
(420,000
|
)
|
|
|
|
|
$
|
7,631,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt obligations
|
|
$
|
-
|
|
|
$
|
331,421
|
|
|
$
|
-
|
|
|
|
|
|
$
|
331,421
|
|
Lines
of credit – bank
|
|
|
-
|
|
|
|
579,008
|
|
|
|
-
|
|
|
|
|
|
|
579,008
|
|
Short-term
notes payable
|
|
|
-
|
|
|
|
1,412,446
|
|
|
|
-
|
|
|
|
|
|
|
1,412,446
|
|
Book
overdraft payable
|
|
|
-
|
|
|
|
31,832
|
|
|
|
-
|
|
|
|
|
|
|
31,832
|
|
Accounts
payable
|
|
|
490
|
|
|
|
744,919
|
|
|
|
(490
|
)
|
|
(3)
|
|
|
|
744,919
|
|
Accrued
expenses
|
|
|
-
|
|
|
|
63,541
|
|
|
|
-
|
|
|
|
|
|
|
63,541
|
|
Accrued
payroll and payroll taxes
|
|
|
-
|
|
|
|
189,319
|
|
|
|
-
|
|
|
|
|
|
|
189,319
|
|
Customer
deposits
|
|
|
-
|
|
|
|
109,938
|
|
|
|
-
|
|
|
|
|
|
|
109,938
|
|
Due
to officer/stockholder
|
|
|
13,383
|
|
|
|
22,851
|
|
|
|
(13,383
|
)
|
|
(3)
|
|
|
|
22,851
|
|
Total
current liabilities
|
|
|
13,873
|
|
|
|
3,485,275
|
|
|
|
(13,873
|
)
|
|
|
|
|
|
3,485,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt less current maturities
|
|
|
-
|
|
|
|
4,074,569
|
|
|
|
-
|
|
|
|
|
|
|
4,074,569
|
|
Total
liabilities
|
|
|
13,873
|
|
|
|
7,559,844
|
|
|
|
(13,873
|
)
|
|
|
|
|
|
7,559,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
-
|
|
|
|
159,673
|
|
|
|
-
|
|
|
|
|
|
|
159,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
33,000
|
|
|
|
1
|
|
|
|
28,750
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,751
|
)
|
|
(1)
|
|
|
|
40,000
|
|
Additional
paid-in capital
|
|
|
-
|
|
|
|
635,269
|
|
|
|
(6,999
|
)
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,873
|
)
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,873
|
|
|
(3)
|
|
|
|
595,270
|
|
Retained
earnings (accumulated deficit)
|
|
|
(46,873
|
)
|
|
|
(303,537
|
)
|
|
|
46,873
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(420,000
|
)
|
|
(4)
|
|
|
|
(723,537
|
)
|
Total
stockholders’ equity
|
|
|
(13,873
|
)
|
|
|
331,733
|
|
|
|
(406,127
|
)
|
|
|
|
|
|
(88,267
|
)
|
Total
liabilities and stockholders’ equity
|
|
$
|
-
|
|
|
$
|
8,051,251
|
|
|
$
|
(420,000
|
)
|
|
|
|
|
$
|
7,631,250
|
|
See notes
to the pro forma combined financial statements.
LAS
PALMAS MOBILE ESTATES, INC.
(A
DEVELOPMENT STAGE COMPANY)
PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE
SIX MONTHS ENDED JUNE 30, 2008
|
|
Las
Palmas Mobile Estates
|
|
|
Advanced
Fiberglass
|
|
|
Pro
Forma Adjustments
|
|
Notes
|
|
Pro
Forma Combined
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
3,569,325
|
|
|
$
|
-
|
|
|
|
$
|
3,569,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
-
|
|
|
|
3,029,524
|
|
|
|
-
|
|
|
|
|
3,029,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
539,801
|
|
|
|
-
|
|
|
|
|
539,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
2,590
|
|
|
|
1,024,966
|
|
|
|
-
|
|
|
|
|
1,027,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,590
|
)
|
|
|
(485,165
|
)
|
|
|
-
|
|
|
|
|
(487,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
|
(171,806
|
)
|
|
|
-
|
|
|
|
|
(171,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before non-controlling interest in variable interest
entities
|
|
|
(2,590
|
)
|
|
|
(656,971
|
)
|
|
|
-
|
|
|
|
|
(659,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
-
|
|
|
|
(94,306
|
)
|
|
|
-
|
|
|
|
|
(94,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(2,590
|
)
|
|
|
(751,277
|
)
|
|
|
-
|
|
|
|
|
(753,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
-
|
|
|
|
(185,000
|
)
|
|
|
-
|
|
|
|
|
(185,000
|
)
|
Net
loss
|
|
$
|
(2,590
|
)
|
|
$
|
(566,277
|
)
|
|
$
|
-
|
|
|
|
$
|
(568,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000,000
|
|
See notes
to the pro forma combined financial statements.
LAS
PALMAS MOBILE ESTATES
(A
DEVELOPMENT STAGE COMPANY)
PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED DECEMBER 31, 2007
|
|
Las
Palmas Mobile Estates
|
|
|
Advanced
Fiberglass
|
|
|
Pro
Forma Adjustments
|
|
|
Notes
|
|
|
Pro
Forma Combined
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
6,541,256
|
|
|
$
|
-
|
|
|
|
|
|
$
|
6,541,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
-
|
|
|
|
5,215,245
|
|
|
|
-
|
|
|
|
|
|
|
5,215,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
1,326,011
|
|
|
|
-
|
|
|
|
|
|
|
1,326,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
4,973
|
|
|
|
1,085,521
|
|
|
|
-
|
|
|
|
|
|
|
1,090,494
|
|
Gain
on sale of land and building - Variable interest entity
|
|
|
-
|
|
|
|
(100,220
|
)
|
|
|
-
|
|
|
|
|
|
|
(100,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
from operations
|
|
|
(4,973
|
)
|
|
|
340,710
|
|
|
|
-
|
|
|
|
|
|
|
(335,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
|
(132,274
|
)
|
|
|
-
|
|
|
|
|
|
|
(132,274
|
)
|
Interest
income
|
|
|
-
|
|
|
|
2,783
|
|
|
|
-
|
|
|
|
|
|
|
2,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net
|
|
|
-
|
|
|
|
(129,491
|
)
|
|
|
-
|
|
|
|
|
|
|
(129,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before non-controlling interest in variable interest
entities
|
|
|
(4,973
|
)
|
|
|
211,219
|
|
|
|
-
|
|
|
|
|
|
|
206,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest in variable interest entities
|
|
|
-
|
|
|
|
(168,195
|
)
|
|
|
-
|
|
|
|
|
|
|
(168,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) before provision for income taxes
|
|
|
(4,973
|
)
|
|
|
43,024
|
|
|
|
-
|
|
|
|
|
|
|
38,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,000
|
)
|
|
(5)
|
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
$
|
(4,973
|
)
|
|
$
|
43,024
|
|
|
$
|
(15,000
|
)
|
|
|
|
|
$
|
23,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share – basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000,000
|
|
See notes
to the pro forma combined financial statements.
LAS
PALMAS MOBILE ESTATES
NOTES TO
THE PRO FORMA COMBINED FINANCIAL STATEMENTS.
(UNAUDITED)
Note 1 -
Basis of Presentation
The
accompanying pro forma combined financial statements are presented to reflect
the acquisition of AFT by LPME, with the operations of AFT being the continuing
operations of the combined entities. For accounting purposes the
acquisition has been treated as a recapitalization of AFT with AFT as the
acquirer (reverse acquisition).
The
accompanying pro forma combined balance sheet as of June 30, 2008 has been
prepared to give effect to the reverse acquisition of AFT by LPME as if the
acquisition occurred on June 30, 2008. The historical financial
statements prior to June 30, 2008, are those of AFT. The accompanying
pro forma combined statement of operations combines the historical operations of
AFT for the six months ended June 30, 2008, and the year ended December 31,
2007, as if the acquisition had occurred on January 1, 2007.
Note 2 -
Pro forma adjustments
The
unaudited pro forma combined financial statements reflect the following pro
forma adjustments:
(1) As
a part of the reverse acquisition, AFT shareholders will receive 28,750,000
shares of LPME and the majority shareholder of LPME will retire 21,750,000
shares of LPME so that 40,000,000 shares ($.001 par value) will be outstanding
post acquisition. All of the common shares ($0.01 par value) of AFT
will simultaneously be retired.
(2) As
a result of the reverse acquisition, LPME’s deficit accumulated in the
development stage will be eliminated and be offset against additional paid in
capital.
(3) Integritas,
Inc. received 19.79 shares (pre-acquisition) of AFT in return for its continuing
consulting services provided in the AFT/LPME reverse acquisition
transaction. Part of these services includes paying off the advances
made by LPME’s officers.
(4) Because
this transaction is considered a reverse acquisition and LPME has no cash on the
date of the acquisition, prepaid acquisition costs are expensed as part of the
acquisition transaction. Since acquisition costs are not a recurring
operating expense, they are not reflected in the pro forma combined statement of
operations and are shown as an offset to retained earnings.
(5) AFT
operated as an S-corporation in 2007. For the year ended December 31,
2007 pro-forma financial statements, assuming a 40% income tax rate on combined
LPME and AFT operations, a tax provision of $15,000 has been
recorded.
5